The prices of oil reached $100 per barrel yesterday, brightening prospects of lower interest rates and inflation next year. US light sweet crude price in Europe dipped by $3 at $103.26, while Brent crude was down by $4.14 at $99.3. Prices had reached all time high of $147 a barrel, in July 2008.
An assurance from OPEC president and comments from Saudi Arabia that no cut would take place in the oil production, contributed to the long awaited fall in the prices. The financial markets have concluded that oil prices would stabilise at $90 to $100 at least for sometime, leading to possibility of abatement in inflation.
Oil prices, though down, are still up by 50% than last year and nearly ten times more than a decade ago.
The fall is also attributed to strengthening of US dollar, slowdown in the global economy and threats of recession in Europe and the US.
Search for alternative energy sources by the governments, and increasing use of public transport and small cars by the people, led to significant drop in demand for oil. The fall in oil prices would soon decelerate price rises in the stores. The British manufacturers have already started reaping benefit of low material prices.
According to David Shaw, economist Investec, fall in oil prices would reverse spike in the UK inflation which might fall back to below 2% from expected peak of 5.1%, by the middle of next year.
A deal between the UK government and energy firms to cut down on household bills is about to be finalised. The new measures are expected to offer the ‘poorest’ customers better home insulation and also help them to find the most suitable gas and electricity tariffs.
Meanwhile, Union leaders called on Prime Minister Gordon Brown with a demand to impose a windfall tax on the profits of energy companies. But ministers state making homes more energy-efficient is a much better and long-term solution to cutting energy bills.
The package of customer-friendly measures is expected to provide better insulation for all UK homes over the next decade and targeted help towards the poorest people to make sure they can get the best fuel deals. The energy firms will also offer a greater contribution to the carbon emissions reduction targets scheme.
According to BBC News, the deal took weeks to put together, but still might not satisfy union leaders who demand that the government money should go directly to cutting bills. The Prime Minister hopes the deal will generate a warmer reception from participating delegates at the Labour Party’s conference in two weeks’ time.
McBride, the makers of washing-up liquid and own-brand toothpaste, plan to slash 250 British jobs due to high oil prices and strong competition from supermarkets.
According to Miles Roberts, chief executive at McBride, the soaring oil prices pushed up costs which could not be passed on to customers since retailers insisted on the lowest prices. All the efforts in reducing costs and improving efficiency failed to produce a result, which led to a consultation that decided a reduction in staff was required for achieving drastic cuts in costs.
McBride is also the supplier of own-brand products such as deodorants, dishwasher tablets and shower gel to Sainsbury and Tesco. It has planned a transfer of work to a new plant at St Helens from existing plants in Warrington and Coventry. The new plant would enable reduction of workforce strength by 10%, which currently stands at 2,500.
According to Mr. Roberts, the reduction in workforce would result in an annual savings of £1m in costs. He hinted that further job cuts might be initiated if business in the UK did not grow on account of costs.
McBride’s pre-tax profits went down by 47% to £15.7m despite an increase of 18% in the revenues. Mr. Roberts attributed this loss to £70m extra expenditure on oil and cost of raw materials and components.
The shares went down from 110p to 108p. The company is going to pay a 3.9p dividend on November 28.
Centrica, which met with a lukewarm response from the Secretary of State for Business, John Hutton, held a meeting with one of the British Energy’s largest investors M&G last week. The nuclear energy provider had declined French group EDF’s £12bn all-cash offer last month, since two of its largest shareholders Invesco Perpetual and M&G had rejected it as too cheap.
The talks with EDF continued due to the Government’s favour for the deal which has a 35% stake in the British Energy. M&G, while denying any discussions with EDF, described talks with Centrica as constructive. According to the M&G’s spokeswoman, the 765p-a-share offer undervalued the group and it preferred a potential proposal from Centrica on the takeover issue.
The M&G statement was in response to reports of progress in talks with EDF. According to a source, a fall of 25% in the oil prices has altered the perception of British Energy’s worth. Invesco Perpetual did not comment on the latest developments, leading to speculations that it played a key role in progress of talks with EDF, though it had described the Centrica offer as sensible last month.
The Government’s preference for EDF is largely due its vast experience in nuclear power stations.
By 2020, seven out of eight nuclear reactors run by British Energy would be out of commission. Also a large number of coal-fired energy plants would be closed under the environmental rules, by 2015.
Whitbread’s second-quarter sales were significantly up as the cash strapped diners and business travellers switched to budget hotels. It registered an increase of 7% in like-for-like sales compared with last year, on the basis of Premier Inns hotel chain’s strong performance. Premier Inns’ sales rose by 18% and like-for-like business went up by 10%. Whitbread generates more than 70% of its profits through Premier Inn sales.
According to Alan Parker, Whitbread chief executive, the companies were asking their senior mangers to improve services of Premier Inns to save on costs. He is expecting very strong demand from the commercial market. He informed that Whitbread has a large segment of middle level managers. With the introduction of cost saving initiatives by the companies, more senior managers were staying in Premier Inns, leading to substantial rise in sales.
Parker further added that business managers stay longer, dine in restaurants and pay a higher tariff for weekday stays, compared to leisure guests. The rise in corporate business is also witnessed by rival Travelodge, which operates mid-market hotels.
However, Mr. Parker is uncertain about the future trends due to increasing economic pressures on the consumers. He informed that the group is going to focus on expansion through the acquisition of hotels. Whitbread opened 14 new Premier Inns in 2008, adding 1,157 rooms. It intends to add a further 4,000 rooms, which would take the total to 40,000 rooms in 570 hotels, all over the UK.
JD Wetherspoon, which registered 11 per cent fall in its profits last year due to the smoking ban, is looking at a revival. Its sales grew by 1.1 per cent in the five weeks to the end of August due to shifting of focus on the sale of food.
According to its chief executive, John Huston, the first year of the smoking ban resulted in a decline in beer sales, but food sales registered a good growth. The smoking ban, imposed in July 2007, did not impact the sales immediately, but it went down by 3% at the end of January 2008. The third quarter was flat and then sales went up by 0.4% in July.
Huston attributed the 0.4% growth to the sales of food and the drinks associated with it. He observed that sales on the bar started improving only due to the visits of customers coming for meals rather than just drinks.
Pub chains are betting on food sales more than sale of drinks. Punch Taverns is now focussing more on food, after reporting a fall of 3.5% in sales last week. Whitbread could tide over the gloomy scenario through its Premier Inns budget restaurants by registering an increase of 7% in sales in the second quarter.
The pub trade has gradually declined since its high in 1979. Pubs which did business of 29.5 million pints a day are now pushing only 7 million pints everyday.
Smoking ban, rising commodity prices and the biggest hike in duty on beer has resulted in 4 pubs closing everyday, against 4 per week in 2006, as reported by the British Beer and Pub Association.
Sony has been made to call back hundreds of thousands of Vaio machines amid media reports that some caught fire, injuring their users. The recall of 438,000 PCs worldwide is a major setback for the electronics giant.
The recall is also an embarrassment for Sony. It was forced to recall almost 10m lithium ion batteries in 2006, at a cost of £272m, amid worries that they could overheat. Sony stated it would provide free repairs for customers in the 48 countries, including the UK and the US, in which the potentially defective model is on sale.
A Sony source, who did not want to be named, admitted to The Guardian newspaper that the company had known about the issue since last August.
“We fully recognise the fact there were problems with the (slow) speed of our response, but we are trying our best to address it and make sure it does not happen again,” the source added.
Sony insisted that the issue would have a minor effect on earnings, but analysts stated it could harm the company’s brand.
“If these things pile up and reveal that the firm is structurally weak, its brand value will definitely be hurt,” stated analyst Mitushige Akino of Ichiyoshi Investment Management.
Marks and Spencer, the high street giant, has hired Del Boy in its efforts to make its food more appealing. From Sunday onwards, Sir David Jason - who played dealer in the sitcom Only Fools and Horses - would promote a new range of Marks and Spencer’s Italian ready meals. M&S had been featuring voice of the actress Dervla Kirwan in its advertisement “This is not just food, this is M&S food”.
Parting with the parodied advertisement and its food director, Steve Esom, M&S has initiated a change in its food division, which registered a fall of 4.5% in its like-for-like sales for 13 weeks to June 28.
M&S started trial of branded food products, including Marmite, Tabasco, and Coca-Cola in the North-east at 19 stores. Esom’s successor, John Dixon, introduced Wise Buy promotions and a range of initiatives to focus on value.
Seymour Pierce’s analyst Freddie George, commenting on the new ad, mentioned that previous adverts were elitist, while the latest change seemed to aim at bringing its food products to the masses. M&S explained that the selection of Sir David was prompted by his universal appeal with the British. The choice of Del Boy is likely to lead to scrutiny of M&S’s food prices by industry experts who consider it to be highly expensive.
The lottery machine supplier Gamingking has agreed to a reverse takeover of the UK’s second largest amusement machines operator, Orb Holdings. Gamingking registered a fall in sales and profits on account of the credit crunch and smoking ban in private clubs. A capital reorganisation is slated after the completion of the takeover deal. Orb Holdings, also the owner of Sceptre Leisure and Regal Machine Sales would change its name to Sceptre Leisure.
Gamingking’s lottery offering will be expanded by the newly enlarged company into Orb Holding which serves 6,500 pubs. This will help in expansion of core market of Gamingking’s registered member’s club.
Gamingking is listed at Aim. It supplies gaming machines to 3,500 working men’s and private members’ clubs. It will be acquiring all the shares of Orb holdings.
New shares equivalent to 85% of the enlarged company would be held by Sceptre Leisure while 15% would go to Gamingking’s current share capital. Gamingking’s shares resumed trading on September 2 after the suspension at 1p last month.
According to its chairman, Douglas Yates, the combination of two companies would create cross-selling opportunities across a number of fronts. Gamingking is supplying lottery ticket vending machines to licensed premises and pubs after the lifting of prohibition under the Gambling Act 2005.
The Bank of England (BoE) decided to leave interest rates unchanged - on hold at 5 per cent for the fifth successive month in the face of more evidence that the economy is heading further into recession. The Bank’s latest announcement followed disappointed figures from the Halifax, showing that house prices were tumbling at the fastest pace ever recorded, while car sales fell nearly 20% in August.
There are growing expectations that the monetary policy committee would soon slash rates in response to a slowdown, but few were surprised by the decision.
“A rate cut is now only a matter of time,” said an analyst at Commerzbank in London, Peter Dixon. “We assess the Monetary Policy Committee’s (MPC) inactivity as part of a waiting game to check how the balance between inflation and growth pans out. While inflation is at the top of the MPC’s agenda currently, it will not be long before the weakness of growth gets priority.”
In spite of signs of an economic slowdown and recession in the UK, the MPC has been rather reluctant to cut rates because inflation is at 4.4% - almost double the government’s target of 2%. It is likely to rise further.