Business to Business News

The credit crunch is proving to be somewhat profitable for the majority of Britain’s tearooms. The new, young clientele seem to be enjoying more tea-scones, sandwiches, cakes and a refreshing cup of tea.

Tearoom owners are glad that when most of the businesses are faced with consumer slowdown; more customers are switching over to homely cafes and parlours shunning expensive coffee houses.

According to William Gorman, UK Tea Council’s Executive Chairman, afternoon tea is becoming more fashionable with the younger generation, which has rediscovered the charm and elegance in old English customs.

Donna Lewington, owner of Highdown Tearooms in Worthing, West Sussex reported an increase of 30% in its sales in 2008 compared with sales in 2007. She claimed that a lot of people were realising that a scone and a cup of tea in a tearoom were far better than pre-packaged food and grand latte in the national chain of expensive coffee houses.

Duchess of Bedford was thought to be following the custom of afternoon tea in the 18th century, to overcome ‘sinking feeling’ which she had been complaining of in the late afternoons. She started inviting her friends for tea and snack between 3pm and 5pm.

Andy Price, owner of the Print Room in Bournemouth recorded phenomenal increase of 50% in his sales during last 6 months.

The woes of retailers, due to the economic downslide, continued in September, as 48% of them reported a fall in sales, with just 21% posting a rise during August 18 and September 17. This was revealed in findings of the Confederation of British Industry’s (CBI’s) Distributive Trades Survey, which predicted no recovery until autumn 2009

According to retail director Andy Clarke, at supermarket grocer Asda, consumer spending was largely impacted by the credit crunch-related news and nobody was sure what would happen to the performance in the prevailing volatile environment.

However as per the survey findings, the net balance of 27% negative retailers who posted drop in sales was better than August’s record low of 46% negative. The improvement was due to the contribution of grocers, 37% of which remained in positive territory. The non-grocery retail posted fall during the same period.

Industry experts see a bleak Christmas for the retailers.

Senior manager of retail accountancy firm Ernst and Young, Martin Carr, is predicting that many retailers might go on sales much before Christmas due to falling house prices and squeeze on household expenses. He noted that retail sales were closely impacted by house prices. Many people were reported switching over to Aldi, Primark and Lidl for getting discounts on purchases.

The CBI is forecasting declining sales in October by the negative balance of 30% of retailers. It is predicting mild negativity in third and fourth quarter but saw shoots of recovery, one year from now

The UK government’s plans for nuclear power stations received a long awaited boost after French group EDF succeeded in clinching £12.5bn deal to buy British Energy. EDF will now build four new reactors to enhance the UK’s power generation capacity.

The government will gain more than £4bn from the deal through its 36% stake in British Energy, enabling it to start new power plants.

EDF, the world’s biggest nuclear power generator with a majority stake by the French Government, intends to construct and operate two reactors each at BE’s existing sites Sizewell in Suffolk and Hinkley Point in Somerset.

The French group is negotiating the sale of a 25% stake in the new British Energy to Centrica, which is interested in power-sharing after the completion of takeover.

EDF will pay 774p a share, 9p higher than what it had offered in July, but was rejected by BE shareholders as too low. The deal is the largest ever investment made by any foreign company in Britain.

The deal was welcomed by Prime Minister Gordon Brown as a significant step in building a new generation of nuclear power stations and providing good value for the taxpayers.

BE Chairman described the deal as good for shareholders, BE staff, nuclear industry and the country as a whole.

EDF’s planned reactors will be able to meet 13% of the UK’s energy demand by 2020, saving nearly 14m tonnes of CO2 emission annually. The first reactor will be in operation by 2017.

Wal-Mart-owned grocer, Asda, has reported that sales at its stores in the North were more affected by the current credit crunch than in South.

Asda’s retail director, Andy Clarke, revealed that sales in the South outstripped those in the North, while sales in Wales remained unaffected. He observed a marked difference in confidence levels in the South East and North East.

Clarke stated that it had stepped up a promotional campaign by targeting the large number of cash strapped customers who had started eating at homes in the backdrop of the credit crunch. He informed that Asda had been resorting to launching or re-launching products to meet requirements of this market; an approach which is also being adopted by Morrisons and Sainsbury’s. Clarke was seeing a new trend in home eating and drinking.

Asda had been helping customers by providing shuttle bus service at 25% of its stores for commuting to and from out-of-town stores. This saved customers’ expenses on petrol in travelling for eating out of home.

Peter Marks, chief executive of the Co-operative Group informed that it was benefiting from emerging trend of eating at home which boosted Group’s pre-tax profit sharply.

The Group posted 60.5% rise in profits to £197.6m, for 28 weeks to July 26. The strong performance was driven by the food division and its merger with United Co-operatives which increased its outlets in north of England. Food Division’s sales grew by 43.5% to 2.4bn.

Channel 4 has announced the termination of 15% of its workforce and stoppage of less financially attractive programmes.

The broadcasting company needed a subsidy of £150m every year up to 2012 to render public broadcasting services and estimated that the cutting of 150 jobs would save £50m a year for the company for the next 2 years.

Channel 4, which is state-owned but commercially funded, claimed that a 5% fall in the advertising revenue compelled them towards terminating the jobs. The company generates annual revenues of £1bn.

The cut would result in less original productions and the broadcast of more repeat programmes by the channel in its schedule. The UK originated material alone would account for two- thirds of the £26m cut from current year’s programming budget.

However, Channel 4 will protect the most important PSB telecasts such as Dispatches and Channel 4 News, but drop non-commercial programmes.

The channel drew attention to its plight most vocally, highlighting that it would face trading loss unless it was helped in bridging a yearly gap of £150m in funding until 2012.

This argument of channel 4 has been accepted in principle by the broadcasting regulator Ofcom. It will be disclosing in a few days about the details of the aid to Channel 4.

Britain’s last publicly quoted machine tool manufacturing company, 600 Group, is being targeted by a private group for acquisition in a bid to expand business.

The chief executive of Precision Technologies Group, Mark Franckel, indicated that 600 Group was an attractive and potential target, which was approached with an offer by his group last year.

Talking about Precision Technology Group’s potential deals with other companies including 600 Group, Mark Franckel informed that his group was keeping its options open.

600 Group, based in Leeds, made a pre-tax profit of £3.6m on sales of £78.9m last year. Precision Technologies Group had made a formal bid offer in October 2007, but pulled out later after the failure of talks.

Commenting on Precision Technologies Group’s approach last year, Martin Temple, chairman of 600 Group, stated that offer was against the best interests of 600 Group and its shareholders. He believed that Precision Technologies Group would be of no help in improving performance of his Group.

600 Group had been passing through difficult times in last few months. Its chief executive, Andrew Dick quit the office a few weeks ago. He was replaced by David Norman, an experienced manager and turnaround specialist who had been working with Hanson Company. Its shares fell by 50% since November last.

Despite of steep fall in share prices, Martin Temple is confident of a viable future for 600 Group’s independent business and ruled out any change in its opposition to acquisition move by Precision Technologies Group.

Nomura, the biggest investment bank of Japan, is set to emerge as the major European investment bank after its acquisition of Lehman Brothers’ London business in equities and investment banking. The deal has come as a blessing in disguise for 2,500 employees whose jobs now appear to be safe.

Nomura said that its long-held aspirations of becoming a big player in Europe could be fulfilled due to serious mistakes committed by its international competitors.

Nomura would place 2,500 Lehman employees at the bankrupt bank’s office at Canary Wharf in London. However the future of 2,000 employees working in asset management and other businesses is not yet resolved, though the PwC administrator revealed that he had received tentative offers for these businesses as well.

Nomura did not disclose the price it paid for the deal but claimed that it was nominal. Its advisor Sadeq Sayeed, in response to a question, mentioned that it intended to become ‘Big’. He said that Nomura had been trying to penetrate international markets with varying degree of success while looking for right opportunities outside Japan for some time.

Nomura had taken over the Asian operations of Lehman Brothers the previous day, for £121m ($225). Nomura beat Barclays in bidding for European equities in order to acquire investment banking business. Both have bought big chunk of Lehman’s assets since it bankruptcy.

Failure of Centrica to clinch a deal with British Energy could result in a loss for the UK’s electricity consumers.

According to M&G, which holds large holdings in Centrica and BE, the deal would have been more useful both for BE shareholders and the country than the takeover by EDF.

The country has been more dependent on imports due to a steady decline in Britain’s North Sea gas production from its peak in 2000.

According to the National Grid’s estimates, the operators of electricity and transmission systems, Britain would have to import half of its supply capacity in winter either from pipe line gas via the Netherlands, Belgium and Norway or liquefied natural gas from Egypt and Qatar.

An industry expert described Britain’s position as a “swing consumer” of gas, which was left on tenterhooks and received only that much supply which remained balance after meeting full demand of the European requirements. He further elaborated by saying that this situation led to increased volatility in electricity prices, which were linked to gas, creating inflated energy costs for residential consumers and business.

M&G believed that the British Energy and Centrica alliance would have been much beneficial in securing long-term stable supply of gas for Britain. In return for stability, the new energy champion could have been allowed to earn more profits.

The Government, undeterred by the arguments, backed EDF considering French group as the best option, on basis of its financial strength and nuclear energy expertise.

Three credible buyers have shown interest in buying the bankrupt Lehman Brothers’ UK arm in London.

The administrator Tony Lomas, at PricewaterhouseCoopers (PWC) for the Lehman Brothers International (Europe) informed that three parties were interested in buying investment business and equity trading arm, which had been employing 600 people. It covered activities pertaining to mergers, acquisition and corporate finance.

He acknowledged that all the offers were from credible and very different financial institutions and was hopeful of starting negotiations at the earliest.

Lomas added that Barclays which had decided to buy Lehman’s US investment banking operations could be opting for parts of the London activities. He added that other parts of Lehman’s business where buyers showed interest included real estate, broker dealer and asset management arm which totally employed 3,400 people.

Lomas also confirmed that he was securing $100m from Cargill group’s CarVal for paying staff salaries for September. This type of funding is known as “debtor-in-possession funding” or “dip financing”. This enables administrator to keep business intact for a sale.

Many of the employees were helping PWC with administration process particularly related to unwinding of massive trading on London Stock Exchange where Lehman still had billions outstanding.

Christian Meissner is heading Lehman in London following the sudden departure of Jeremy Isaacs few weeks ago.

The airports operator BAA, the owner of Standsted, Heathrow and the three biggest airports of Scotland, is to begin a sale process for Gatwick airport “immediately”.

It assured that staff, customers and businesses would benefit from BAA’s sale of Gatwick.

The decision is fallout from the Competition Commission’s report which identified some “significant competition problems” due to company’s dominance in the industry. The report proposed that BAA stopped operating two of its three airports in London.

Gatwick, located in West Sussex near Crawley, is the busiest airport in the UK, next only to Heathrow and handled 35 million passengers last year.

According to Colin Matthews, chief executive BAA, Gatwick had been a valuable asset of BAA and the decision to sell it was quite tough. He believed that ultimately everyone would benefit from the resolution of this current uncertainty.

Mathews added that soon after the publication of Competition Commission’s provisional findings, BAA assured to respond realistically, though it disagreed with the report and the basis of Commission’s analysis.

He informed that the group wanted to continue its operations at three other airports and three Scottish hubs.

The Competition Commission is likely to order BAA to sell Standsted and Gatwick airports and one of either Edinburgh or Glasgow airports.

Matthews said that BAA will present its case in respect of the South East and Scotland airports.