Business to Business News

UK’s largest telecom company, BT, is joining the rush to trim down employee strength as a measure against economic slide. The BT chief insisted that group would have to face the coming downturn with hard measures.

BT will be cutting 10,000 jobs, 6% of its global strength, bringing total job losses figure in the UK to 20,000 in this week and giving another jolt to the country’s economy.

BT’s news of job cuts and 11% fall in profits in the second quarter was accompanied by more bad news from Britain’s manufacturing industry. The digger company, JCB, announce an output cut of 33% with reduction of 400 jobs. Another big manufacturer of trucks, Leyland, announced an extended shut-down of plant and elimination of 250 jobs due to big decline in demand.

News of production cuts and job losses have continued pouring in, reflecting on worsening condition of economy which has created panic in the industry. Virgin Media is planning to remove 2,200 workers, while Yell announced the removal of 1,300 staff. Thousands of Vodafone’s employees across Europe will be losing their jobs after it launched an initiative for cost saving worth £1bn.

4,000 employees for BT have already left the company and a remaining 6,000 from among 50,000 contract workers will leave by March, 2009. About 6,000 employees retire from the jobs every year and there are plans by the company, which once employed 250,000 people, not to fill these posts in future.

Undeterred by the gloom in economy, satellite broadcaster, BSkyB, recorded 25% increase in profits, much higher than expected in the first quarter.

BSkyB also succeeded in attracting 87,000 new customers taking it past 9 million milestone.

The broadcaster’s chief executive, Jeremy Darroch described its performance of first quarter as best in terms of number of customers in five years, which now stands at 9.067 million.

Darroch informed that some of Sky’s users had traded down from more expensive packages, but it has been offset by persuading customers to avail one of its 3 services, TV, home telephony and broadband. Currently only 12% of subscribers had signed up for all three services.

Darroch declared that broadcaster was relatively well positioned as a business but was not complacent and added that no consumer business could be immune to sustained downturn.

Darroch had taken over from James Murdoch less than a year ago.

He claimed that more people were joining Sky, staying for long and availing more of its services thereby contributing to growth of its top line.

In three months till September end, Sky’s operating profits rose by 25% to £179m and revenues grew 5% to £1.25bn. Darroch informed that company was well on track to achieve target of 10 million customers by the end of decade.

A surprise warning by BT on its profits made its shares lose almost a fifth of their value.

Telecom giant‘s division which provides services to multinational companies did not achieve targets. Although Global Services division continued growing strongly, it’s below expectation cost savings affected earnings.

BT also attributed adverse impact to the decline in UK business of higher margins. The overall impact would result in slight fall in group’s expected earnings of the second quarter.

BT claimed that its other divisions including BT Retail were doing well and results were expected to be in line with targets or ahead.

The group’s chief executive Ian Livingston, who took over in June, stated that BT’s performance was as per expectations in all divisions except BT Global Services. He acknowledged that division’s performance was unsatisfactory and BT was committed to rectify the situation through decisive actions.

He declared that new management at Global Services would accelerate implementation of measures for cost efficiency and improvement of margins.

A range of international companies including news and information group Reuters and consumer products company Unilever receive global communication services from Global Services division.

Division’s revenues increased by 15% year-on-year basis in second quarter with expansion of services to China and India, but BT warned that these earnings of £120m would be significantly below expectations.

Department stores sales of John Lewis Partnership fell 9.8% as the retailer passed through another tough week due to judicious spending of the retail shoppers.

Sales may have been affected by the earlier commencement of half-term holidays, but John Lewis believed that customers were budgeting their spending very judiciously amid economic downturn.

John Lewis home sales fell by 17.3% while home technology and electricals were down by 9.6%. Decline in fashion sales was 1.3%. Sales in Milton Keynes stores were down by 25.7%, Southampton registered 21.7 decline, Watford sales fell by 21.6% while Cribbs Causeway in Bristol was off 20.3%.

According to retail analyst Freddie George at Seymour Pierce, sales figures were disappointing probably due to discount offers by competitors and early half-term holidays.

Sales update caused Next shares to fall 5% while Marks & Spencer shares came down by 3%.

Andy Street, managing director of John Lewis, claimed that comparison of results with those of competitors proved company was outperforming in very challenging market. He credited success to the work done on shop-keeping, assortment and goods availability. He commented that there would still be winners on this Christmas and John Lewis was sure of being one among them.

Kingfisher, the biggest home improvement retailer in Europe, is pessimistic about growth in the UK market next year, but is confident of capturing market share from rivals.

Ian Cheshire, Chief executive of the Kingfisher group which runs B&Q in Britain, welcomed cuts in the UK interest rates and sharp fall in oil prices, but believed that their impact on improvements in consumer confidence and spending would take quite long.

Ian added that Kingfisher was not planning any growth in next 12 months since business prospects during this period were very dim due to tough conditions.

The UK’s do-it-yourself market was in bad shape since 2005 and deteriorated sharply in 2008 due to housing market slide and recession fears.

Kingfisher rivals Travis Perkins and Home Retail have hinted that full-year profits were likely to be hit and may touch bottom of analyst’s forecast.

Kingfisher’s UK sales accounted for 47% of £9.36bn last year. It was shielded from loss by growth in Eastern Europe and French business which performed better.

Ian Cheshire claimed that Kingfisher had big opportunity to exploit weakness of UK rivals Floors-2-Go and MFI who had started closing stores. He was expecting more trouble for independent rivals this year, who commanded 25% of tiling and kitchen markets.

German flag carrier Lufthansa is taking over Britain’s BMI for €400m (£318m) leading to another shake-up in the airline industry in Europe.

Lufthansa, which already had under 30% stake in BMI, has bought 50% stake of Sir Michael Bishop, chairman BMI, taking control of 80% stake. The balance 20% remains with Sweden-based Scandinavian Airlines, which also intends to sell off its stake.

Lufthansa would be gaining second biggest takeoff and landing slots share at Heathrow airport after British Airways. BMI’s share of slots at Heathrow is 11.4%, next only to 41.5% held by BA.

Virgin Atlantic’s, Sir Richard Bransons, who is seeing Lufthansa as major rival to BA, welcomed the deal. While its chief executive, Steve Ridgway, praised Michael Bishop as one of the icons of UK aviation who championed the cause of consumers and helped in providing much needed competition to BA and one more choice to consumers.

Lufthansa is facilitating consolidation of European aviation industry. It bought 45% stake in Brussels Airlines with option of outright takeover of Belgian airline in 2011. It has plans to buy stakes in Italy’s Alitalia and Austrian Airways.

BMI origins back to 1938 and was known as British Midland in 1964. The name was later changed to BMI. It flies fleet of 51 aircrafts to 51 destinations and handled 10.6 million passengers last year.

Sir Stuart Rose of Marks & Spencer is hoping for good business over Christmas but expects people not to splash out on ‘frivolities’ when the country is sliding into recession.

His comments came at the grand occasion of opening of the Westfield shopping centre, the biggest shopping mall in Europe at White City, west London, where thousands of shoppers thronged, though many had just come to browse.

265 shops in the shopping centre include big names like Next, M&S, Waitrose, House of Fraser and Debenhams.

Models Twiggy and Erin O’Connor flanked Sir Stuart Rose as he inaugurated new M&S store at Westfield. The executive chairman, looking ahead to seasonal business on Christmas, remarked that it would be tough but OK for M&S. He claimed people were buying usable quality stuff and were least interested in frivolities. He was hopeful of a decent Christmas for M&S.

Sir Philip Green, who opened a Topshop at Westfield, also ruled out suggestion that coming Christmas was expected to be bleak for retailers. He remarked he was not part of the “doom mongering camp”. According to him trading was good during the week on account of cold weather and school half-term.

Rose, in an ebullient mood, strode through 103,000sq.ft. store and remarked people would need one next year after picking up Percy Pig piggy banks at the store.

M&S announced launch of womenswear range Portfolio in February which would be cheaper than Autograph range. It is going to fill up the gap in 45-plus market.

Massive slump of 92% in first-half profits has forced British Airways to cut next summer’s capacity, as it forecast bleak outlook for 2009.

High fuel costs compounded by the banking crisis and poor peak season this year, resulted in sharp fall in pre-tax profit from £616m in the same period last year to £52m in 2008. However growth in revenue was up 6.4% to £4.8bn since BA refused to cut down prices during weak demand and adopted strategy different from low-cost rivals. Its chief executive Willie Walsh claimed that it had done well against very tough economic conditions.

BA is heavily dependent on financial services industry for its revenues as nine out of 20 customers belonged to this sector. It draws maximum business from London Heathrow to New York-JKF route which is heavily used by financial professionals and bankers.

Walsh commented that last 6 months’ period would be remembered as the bleakest on BA’s record, which was impacted by banking crisis, record oil prices and closure of several airlines.

BA has planned to cut its summer capacity by 1% next summer by reducing flights on busiest routes. It would also drop 4 routes next year including Heathrow services to Kolkata (India), Dhaka (Bangladesh) and Gatwick routes to Zurich and Dublin.

The airliner pointed out that stronger dollar had offset gains of fall in fuel prices and ruled out significant cut in fuel surcharges.

It is not only credit crunch and economic gloom which is hitting business hard, but also the acute shortage of labour which is making small UK businesses crumble.

The worsening economic condition in the UK and fear of loss of job is compelling migrant workers return home, a new research has revealed.

Small and medium enterprises (SME) in Britain which make annual turnover of £1,440bn and provide jobs to 13.5m people, are in precarious situation with around 40 businesses closing everyday. Shortage of migrant workers would be a big blow to the ailing sector.

The Federation of Small Businesses (FBS) described this as very difficult times and was going to demand Monetary Policy Committee and the Bank of England to lower business rates by 1pc, when they meet this week to discuss ways and means to combat severe recession.

The research was carried by Tenon, the accounting and business advice service. It pointed out that number of businesses employing foreign workers had doubled in the past 2 years. In 2006, only 20% of SMEs were recruiting migrant workers from abroad, the figure has risen to whopping 48%, implying that return of migrant workers to their homes could result into severe jolt to the SMEs and the UK’s economy.

According to FSB chairman, John Wright, businesses’ savings from good days were running out fast. They were cutting costs in energy, marketing, advertising and 40% were worried that they might have to layoff labour next year.

Sainsbury’s had to drop plans to launch healthy eating campaign at the eleventh hour since its staff could be prosecuted individually for use of wonky vegetables banned under new EU regulations.

Sainsbury’s was to introduce Halloween ‘witches fingers’ carrots ‘zombie brains’ cucumbers and ‘ogres toenails’ using misshapen and small size vegetables.

It had thought that Halloween would add a healthy message for children and enable use of surplus vegetables knowing that it was illegal. But later on it learnt that the EU would prosecute individual store managers for violation and not the company. Sainsbury decided not to ask staff to risk criminal prosecution for the sake of company.

Now Sainsbury’s has launched a “Save Our British Fruit and Veg” campaign; against EU’s strict specifications on selling misshaped but cheaper, fresh produce.

EU has clamped strict restrictions on appearance and size of 36 vegetables and fruits. According to EU regulations for supermarkets, it is illegal to sell carrots with more than one root or cauliflowers less than 11cm in diameter.

Farmers, retailers and environmentalists have been outraged over the regulation.

The credit crunch and difficult economic conditions have forced the EU to take a re-look at the regulations. Commission officials are scheduled to meet on 12 November to relax directives on 26 of the vegetables and fruits, but the change is not likely to be implemented before July 2009.

Sainsbury’s wanted a decision to be taken quickly and called for a lifting of restrictions on all fruits and vegetables. The regulation would cause 20% of British farmers’ produce to go to waste.

The campaign against EU regulation is receiving wide support across all sections in the UK.