Business to Business News

Debenhams added optimism to the high street retailers by declaring sales growth for the first time in last 18 months. It joined group of retailers which have begun to defy recession. The department group’s shares also soared after it announced pre-tax profits ahead of City forecasts.

Debenhams’ deputy chief executive, Michael Sharp, stated that consumers have started spending once again on account of low mortgage costs and falling utility bills. He claimed that people were having more disposable income now than they had last year when interest rates and energy bills were at their peak.

Debenhams has been performing well as its sales in 154 stores across the UK grew by 6.1%, with 1.9% increase in like-for-like sales over 7 weeks to April 18. The sales were largely boosted by its Designer range and own-bought ranges including Maine New England.

During 26 weeks at the end of February, Debenhams’ headline pre-tax profits rose by 10.7% to £104.2 million, nearly £10 million above the market forecasts.

The star performers of the retailer were Jasper Conran and John Rocha, where overall sales rose by 11%. Michael Sharp termed this performance as pleasing particularly because trading conditions up to Christmas were most volatile ever seen before. But he is cautious about remaining period of current financial year and did not feel that consumer downturn had reached its bottom.

Debenhams will be opening nine stores during next two years, leading to creation of 1,800 new jobs.

BAA is struggling to get higher offers for its second largest UK airport Gatwick. Three rival consortia are expected to make bids on Monday, but the offers ale likely to be far below the UK airport operator’s earlier expectations.

Analysts are saying that these bids could be anywhere between £1.4bn and £1.5bn, well below £1.8bn, initially expected by BAA, a subsidiary of Ferrovial, Spain.

The valuation of Gatwick airport has gone down due to deterioration in operating performance, as passenger traffic has fallen sharply in last 6 months.

The bidders are also forced to increase equity levels in their bids since raising bank debts has become quite difficult. Debt levels are required to be restricted in order to get better investment-grade ratings from agencies.

The potential buyers of Gatwick are discouraged by the embarrassing collapse of Chicago Midway airport’s privatisation deal in the US. One of the expected bidders for Gatwick admitted that it failed to get finance to complete the deal which it had won for Chicago Midway in September.

Three groups bidding for Gatwick, include Manchester Airport Group, comprising of Borealis, Canadian Infrastructure Fund and the Greater Manchester Pension Fund; Lysander Gatwick Investment and Global Infrastructure Partners.

Electrical parts supplier, Electrocomponents, has posted 5% fall in its annual sales and scrapped special dividend apprehending profits to touch lower end of expectations.

The oxford-based company which supplies electrical items including semiconductors, cables and tools to businesses, is fighting the global slowdown and proposes to axe 470 jobs as one of the measures to cut costs.

Electrocomponents is expecting to save £18 million in 2009-2010, through job redundancies and other initiatives.

For the year ending March 31, the company is expecting pre-tax profit of £85 to £88 million, which is far below profits of £96.4 million made last year. Group sales were down by 5%, with decline of 7% in the UK and 5% in its international business.

Last month, rival Premier Farnell suffered 36% fall in 4th quarter pre-tax profits and announced cutting of jobs and closure of sites in the UK.

Electrocomponents’ group chief executive, Ian Mason, claimed that its gross margins were stable, cash generation was robust and the group was able to reduce costs significantly.

Under the prevailing trading environment, company feels inappropriate to pay special dividend, however it remains committed to pay total dividend of 11p. Special dividend of 7.4p a share was announced in May 2008.

The world’s largest contract caterer, Compass, is reported to have made half yearly profits much ahead of expectations. Strong demand from global healthcare and education organisations for its services coupled with weakening of pound helped it in delivering profitability.

Compass, operating in 55 countries, informed that fall in its UK business was more than offset by the buoyant revenue growth in Australia, North America and other countries. The UK business was down due to decline in corporate hospitality in leisure sectors and automotive industry.

According to its group chief executive, Richard Cousins, the UK sales were affected largely due to suspension of operations by the automotive industry, its major customer in the UK and the snow fall in February. He added that Compass signed a landmark 10 years deal worth £500 million with Jockey Club, the operators of 14 UK racecourses, to provide food services and still had good prospects of new global business.

Compass is expecting its like-for-like sales, organic and new business growth to touch 2.5% over 6 months to March, 31. Its underlying revenue in healthcare, education and remote site sector is performing robustly.

Compass is expecting favourable impact of £70 million on its operating profits due to weakening of sterling against dollar, although its overall UK revenues are expected to decline by 4%. It is also expecting operating margins to improve 50 basis points, as a result of strong performance by all its 4 regions over the half year.

A leading economic group has reported that Government’s much maligned offer of temporary cut in VAT has proved successful in stimulating consumer spending.

The Centre for Economic and Business Research (CEBR) has acknowledged that official retail sales figures of last 3 months provide strong evidence that VAT reduction is working well.

The introduction of VAT cut on December 2008 has given immediate boost to retail sales, informed Douglas McWilliams, chief executive, CEBR.

Annual retail sales growth was up from 1.6% in November to 2.6% in December. It accelerated further in January and came down marginally to 2% in February.

According to Mc Williams, CEBR’s economic models point out that sales growth would have dropped to zero by February had VAT concessions not been introduced in December. Retailers’ turnover grew by £2.1 billion during 3 months of VAT cut, which will be in force only till January 2010.

PM Darling’s proposal for VAT reduction was opposed by the political rivals and bitterly criticised by leading retailers. Chief executive of Next, Simon Wolfson had repeatedly complained that VAT cut was not helping his business, but according to CEBR, it enabled retail sales to grow continuously even during worst economic conditions in the UK since 1980.

The biggest property companies of the UK and retail groups, including Land Securities, British Land, Topshop-owner Arcadia, have decided to call a truce on their battle over rent and service charges.

Landlords of over half of all shopping centres in the UK, including Westfield, Land Securities and Capital and Regional will draw a plan that will provide a lifeline to store groups, which are struggling for survival in the prevailing economic downturn.

The move is aimed at reducing retailers’ service charges by 20% that will save tens of millions of pounds in retailers’ bills. This will also save number of chains from going into administration.

In a fierce war of words, retailers had alleged landlords of demanding very high quarterly rents and charging unjustified service charges. But in a significant deviation from rigid stand, landlords are now ready to outline ten-point checklist to minimise retailers’ costs.

The truce was brought about by Francis Salway, president of the British Property Federation and chief executive of Land Securities, Liz Peace, chief executive of BPF and retailers including Arcadia owner, Sir Philip Green. Salway described this as a big step forward which showed what could be achieved through dialogue.

Under existing service charge system, extra costs incurred by the landlords can be effectively passed on to retailers. According to new system retailers will be able to save money in ten areas from waste management costs to security and procurement of third party services.

This is the second major relief for retailers in a week. The Treasury had backed down on 5% hike in Business Rates a few days ago.

The UK industry had big contribution from music acts including Iron Maiden and Coldplay, as exports touched record levels.

Despite worst economic conditions, British musical talent’s royalties from abroad jumped by 15% during 2008, as reported by PRS for Music, the sole collector of royalties for composers and songwriters.

According to PRS’s chief executive, Steve Porter, music in the UK is a great success story and Britain has become one home of the world musical talent.

The royalties earned by the UK acts touring jumped to £139.6 million in 2008 from £121.2 million in 2007. The rise was mainly due to increased demand for acts including Girls Aloud, Elton John and Mark Knopfler.

According to research conducted by Pollstar, the touring act, Police, was in big demand last year, while groups including The Cure and Spice Girls are also proving more popular abroad.

The British artists found the US market most lucrative, where their revenues rose to £21.7 million. Germany with £15 million was the second biggest generator of royalty, followed by £11.6 million by France. PRS also claimed that international royalties, which stood at £68 million in 1999, have since then more than doubled.

PRS collects and pays royalties to its members whose music is exploited anywhere across the world. This includes, material put online, performances and recordings.

The UK economy seems to be improving as the confidence of business is showing improvement, the pace of house price downturn is moderating and credit crunch is slowly easing.

The encouraging news led to sterling nearing $1.5 mark again. It was also most buoyant week for FTSE 100 in last many years, boosted by G20 summit and improvement signs in economy.

The CBI and the Chartered Institute of Purchasing and Supply (Cips) both stated that managers were anticipating improvements in credit and orders. Cips acknowledged that service sector was still shrinking, but the speed of decline was moderating for the fourth consecutive month after reaching the lowest in November.

Cips surveys in construction and manufacturing also found relatively brighter developments this week. This confidence build up is leading indicator of improvement in future economic activity.

Despite all these encouraging signs, employment outlook is still grim. The survey reveals strongest contraction of staff strength in 13 years of available data.

Based on feed back from its members, CBI has indicated that credit crunch is easing. According to chief economic adviser, McCafferty, even if companies are not stating that credit availability is improving, the severity of operations interruptions is not as bad as it was 3 months ago.

The Government’s extension of support to banking sector and easing of monetary policy has started impacting the situation positively.

BT, in its serious bid to cut costs, is all set to axe 10,000 more jobs and slash final dividend up to 60%.

It is going to announce write-downs of more than £1.5 billion and scaling back of dividend next month when its preliminary results will be made public. It is cutting costs and trying to turnaround Global Services Division.

The job cuts, in addition to 10,000 it already chopped during last year, will be carried out across 150,000-member global workforce. BT had freezed salaries of 85,000 UK staff and senior management, only last month.

The company’s share prices, which tumbled to 81p, reduced BT’s worth to £6.3 billion and preliminary results next month are likely to be worst in its history. City analysts believe BT could further axe additional 12,000 jobs.

A poor performance by its Global Services Division, provider of telecom and IT services to government bodies and multinational companies, has adversely affected BT’s results. Its full-year profits will also be down due to payments of pension deficit of £8 billion.

Global Services suffered operating loss of £501 million in third quarter, as against profit of £22 million last year. Overspending on 3 contracts out of total 17, has led to loss of £336 million. Two contracts with Reuter and NHS are expected to result in loss of “hundreds of millions of pounds” in the fourth quarter.

Ian Livingston, chief executive of BT, who took over the reins in June 2008, claimed that company has proposed major changes in management and was making significant changes in business operations and finance.

Marks and Spencer has registered encouraging rise of 1.9% in its sales over first quarter of this year, despite decline of 4.2% in its home market.

Its sales promotion tactics of Dine In For £10, contributed to results that were beyond expectations and led to major boost in share prices.

Company’s gross sales in Britain were 0.3% less than last year, food sales witnessed marginal 0.4% increase but sales of general merchandise fell 1.2%. However, sales outside Britain registered impressive growth of 23%.

In November 2008, Marks and Spencer’s net profit was down by 43% to £223 million in the first half of the year. Decision to close down 27 stores as cost-cutting measure and to publish annual results on May 19, was announced in January.

Sir Stuart Rose, executive chairman of M&S, acknowledged that customers were feeling the pinch and M&S was trying its best to fulfil their expectations. He went on to add that company could not always succeed in this endeavour, but in last 6 months could improve substantially in fulfilling those expectations. He claimed that customers were responding positively as their traffic has started outperforming the market.

Sir Stuart stated that M&S has sharpened its prices and believes customers know it gives them quality.