“I will be holding discussions with all the companies I regulate following my findings about how they will ensure they are Code compliant. My message is that if anyone previously had any doubts about my resolution to act when I find breaches, they can have no doubt now.”
The Pubs Code Adjudicator found a total of 12 repeat breaches. “It failed to heed statutory advice, the PCA’s regulatory engagement and learnings from arbitration awards. It did not engage frankly and transparently with its tenants or meet the standards required of a regulated business when engaging with the PCA,” said Dickie. “Where it did change its approach, the efforts it made to comply were for the most part inadequate and not credible.” “The company must change its mindset and become proactive in its approach to compliance.” The Pubs Code Adjudicator has given the pub group six weeks to provide a detailed response to how it will implement the suggested recommendations.Heineken fined £2m by PCA
Heineken’s pubs business has been fined £2m for repeatedly breached the legally binding Pubs Code over nearly three years.
Star Pubs and Bars, which operates the pub estate business of Heineken in the UK, had forcing pub tenants to sell 100% Heineken beers and ciders.
Pubs Code adjudicator Fiona Dickie said: “The report of my investigation is a game changer. It demonstrates that the regulator can and will act robustly to protect the rights that Parliament has given to tied tenants.
Lagarde considers using environmental risk to guide ECB bond buying
ECB President, Christine Lagarde, announced on Wednesday evening that the central bank would consider dropping the neutrality principle it uses to guide its corporate bond purchases.
The reason for this change of heart is that the neutrality principle takes no account of climate change and environmental risk in the bond buying process. The approach currently in place has been around since 2016, and aims to avoid misrepresentation of securities prices, by only purchasing them in proportion to the overall eligible market.
This approach, however, has been met by resistance from sustainability advocates, who state that the ECB bond purchasing principle was biased towards high-carbon and environmentally-degrading companies. These businesses are normally in sectors such as oil, gas, utilities and airlines, and are over-represented in the ECB’s bond portfolio, simply because they issue a higher volume of bond.
Fortunately for sustainable businesses, President Lagarde appeared to share their mindset in a recent online video, where she said: “In the face of what I call the market failures, it is a question that we have to ask ourselves as to whether market neutrality should be the actual principle that drives our monetary policy portfolio management.”
“I’m not passing judgment on the fact that it should no longer be so, but it warrants the question and this is something we are going to do as part of our strategy review.”
She told viewers of the event, organised by the UN Environment Programme Finance Initiative, that: “more needs to be done because it is probably the case that financial markets by themselves are not actually measuring the risk properly and have not priced it in”.
Lagarde also said that central bankers “will have to ask themselves the question as to whether or not we’re not taking excessive risk by simply trusting mechanisms that have not priced in the massive risk that is out there”.
She did also note that no formal decision had been made on what would be a seismic change of tac for Europe’s central bank. She did also say, though, that potential changes would be discussed as part of the ECB strategy review, which will likely be wrapped up by summer next year.
As part of its €3.4 billion asset purchase programme, the ECB currently owns more than €236 billion in corporate bonds. However, Positive Money reported that more than 63% of the bank’s corporate bonds were financing carbon-intensive sectors last year.
Further, Lagarde will have to face off opposition from council members, if she hopes to bring her proposals to fruition. Indeed, German central bank boss, Jens Weidmann, has argued in favour of neutrality, stating that the ECB should leave national governments to make decisions on their own climate change policies.
However, her considerations are receiving support. Not only are environmental campaigners applauding Lagarde’s suggestions, but the executive director of Positive Money, Stanislas Jourdan, sated that: “We obviously welcome this reflection which we have called for since several years ago.”
Similarly, ECB executive board member, Isabel Schnabel, went even further in a speech made last month, suggesting that the central bank should exclude certain bonds altogether, in order to avoid financing businesses that conflict with the EU’s 2050 carbon neutrality target.
Test and Trace consultants paid £7k per day in public funds
According to documents seen by Sky News, some consulting executives operating the government’s Test and Trace system are being paid a rate of £7,360 per day – equivalent to more than 1.7 million a year in taxpayer money.
The executives receiving this pay are part of the Boston Consulting Group, with the UK government dishing out £10 million for 40 BCG staff to work on the Test and Trace system between April and August.
While the government employed the consultants for four months, BCG were charging day rates, rather than a set fee for a medium-term contract. The company added that the fees it charged were standard day rates for public sector work, and below what they’d charge private sector clients, though still ranging from £2,400, to £7,360 per day for senior staff.
Even with the 10-15% discount BCG said it was offering the Department of Health and Social Care, the upper fee rate is still equivalent to an annual salary exceeding £1.7 million (with weekends and 28 days unpaid holiday included).
This development follows several questions being raised about the bang for buck taxpayers are receiving with this high-cost and seemingly error-ridden system. It isn’t just infuriatingly ad hoc, it’s also covertly lining the pockets of overpaid consultants, who are using Excel data logging software costing under £100.
Also reacting to the cost of the dubious Test and Trace system, Labour MP, Toby Perkins, spoke in Commons on Wednesday afternoon: “Occassionally you get a story that seems, in itself, to demonstrate a much wider point,” “And so it was today with the scoop revealed by Ed Conway of Sky News that the government is paying, on a daily rate, £7,360 per day to the management consultants at Boston Consulting Group, who are in charge of test and trace.” “Equivalent to a £1.5m salary to individuals as a day rate, to preside over this shambolic sight that is letting down all the people in my constituency and in so many others.” Perkins called for “dedicated public servants” to be brought in, to help run the Test and Trace system at lower cost. “You won’t find dedicated public servants being paid £7,500 per day, you won’t find them on £1.5m, but what you will find is a basic competence, a knowledge of their area, a desire to make sure that the systems work before they are implemented,” he said. “And that is what we need right now in our system.” Referring to his career in the sales industry, he added: “I never came across a customer nearly as naive as what we have with the government.” “I just wish that at some point in my life I could have come across a customer with as much money as the government has, as willing to be so easily impressed as this government is, and as willing to give it to people and then defend the people who let them down as a supplier,” The bottom line is we’re currently paying over the odds for software that, while being rolled out on a huge scale, isn’t actually performing especially sophisticated tasks by modern standards. Not only have other countries managed it, but we need to stop describing it as the ‘NHS Test and Trace app’. Neither BCG nor Deloitte consultants work for the NHS, and linking their efforts to the services the NHS provides, is a great disservice.Simply a scandal. With our money. Governments have always been cavalier with our money when it comes to consultants, especially in Health. But this must be something of a record. Especially for a testing system that doesn’t even work. https://t.co/pJyMaRaBbB
— Andrew Neil (@afneil) October 14, 2020
Asos reports +329% profits – so why did shares fall 10%?
Asos shares (LON: ASC) are trading 9% lower despite the 329% surge in pre-tax profits amid the pandemic.
The online fashion retailer added a further 3.1 million customers, taking the total to 23.4 million.
Sales as Asos surged to £3.3bn, increasing by 19% in the year to 31 August thanks to the demand for skincare products and leisurewear.
“The normal pattern of social events is not going to resume in the short term so whilst we have confidence in our ability to continue growing our market share globally, we are cognisant of the economic impact this crisis is having on our 20-something customers and the pressure on their disposable incomes,” said Asos in a trading update.
Despite the strong trading over the past year, Asos shares fell almost 10% over Wednesday as investors worried about tougher trading conditions over the rest of the year.
Investment analyst at Hargreaves Lansdown, Susannah Streeter, said: “A depressed economic outlook may push down demand to refresh wardrobes.
“With venues forced to close at 10pm and the Christmas party season cancelled, profits from party wear will be thin. Job prospects are uncertain for its core group of customers in their 20s and so the company will have to be very choosy about the ranges and prices it offers.”
The group’s chief executive, Nick Beighton, commented: “After a record first half which saw us make progress in addressing the performance issues of the previous financial year, the second half will always be defined by our response to Covid-19. I am proud of the way ASOS met this challenge head on, putting our duty to act as a responsible business at the heart of our approach and working to balance our performance in that context. As well as protecting staff, suppliers and customers, we’ve driven efficiency and have emerged a stronger, more resilient and agile business whilst delivering strong profit and cash generation.
“I am pleased by the improvements we have made this year but there is still more for us to do to continue our progress. Whilst life for our 20-something customers is unlikely to return to normal for quite some time, ASOS will continue to engage, respond and adapt as one of the few truly global leaders in online fashion retail,” he added.
Asos shares (LON: ASC) are trading -10.22% at 4.828,40 (1613GMT).
Gourmet Burger Kitchen to close 26 restaurants
Gourmet Burger Kitchen will be axing 26 restaurants and 326 jobs in an attempt to save the wider workforce.
As reported by Sky News, the chain will continue to operate in 35 sites with the remaining 669 jobs, however, 26 restaurants will be sold to Ranjit Boparan.
Earlier this year, Boparan rescued the Carluccio’s chain and also owns Giraffe, Ed’s Easy Diner, and Fishworks.
Deloitte is handling the administration process for Gourmet Burger Kitchen and said: “As with a number of dining businesses, the broader challenges facing ‘bricks and mortar’ operators, combined with the effect of the lockdown, resulted in a deterioration in financial performance and a material funding requirement.”
The news comes as much of the UK has been forced into a second lockdown – risking many jobs in the hospitality sector.
Since March, companies in the casual dining sector including Wagamama and Prezzo have resorted to insolvency processes, auctions, or emergency fundraisings.
Using pensions to buy houses will be a disaster for property prices & your retirement
Pensions Minister, Guy Opperman, said in a webinar that he wanted to explore ways for the auto-enrolment pension system to be adjusted, to allow buyers to borrow from their pension pots for property deposits.
Today’s fire sale will mean fewer people will buy tomorrow
Much like the myopic and expedient stamp duty holiday, the risk with this next proposal on the ‘Generation Buy’ playlist is that it would artificially inflate short-term demand. Then, the ensuing buying spree would likely trigger a corresponding, rapid and – for future first-time buyers – harmful rise in property prices. This spike in demand would be unlikely to be matched by a surge in supply, as knowingly pushing existing property owners into negative equity is a huge no-no. Therefore, should such a spike occur, it would be here to stay (COVID and mass unemployment permitting). While dipping into pension pots might build a short-term ‘Generation Buy’, we appear to have forgotten the lessons of Right-to-Buy. If we offer a one-time fire sale to today’s buyers, the first-time buyers of tomorrow will see property ownership as an increasingly distant dream. What should instead be the goal is a consistent supply of housing stock (including social housing), alongside efforts to align property prices with inflation.Pensions or pittance?
Further, even if we blindly skip into a place where this policy exists (which would be necessary to make you think think it’s a good idea), we must consider the issue of compound interest. As stated by Isabelle Fraser, “a small amount taken out of a pension now [- in order to afford a deposit -] turns into a much larger shortfall after decades of missed growth.” The OECD declared that the majority of today’s youngsters will retire with 60% less than current retirees, and that millenials wanting to retire at the same age as their grandparents will have to save an additional £80,000. With this in mind, Boris’ latest gambit isn’t just reckless for property prices, but could be truly devastating for pensioners of the future. Even if today’s buyers survive by using their pension pot to buy property, and then build on that and pay for their retirement – what about the people after them, and the people after that? If we are encouraged to use up larger and larger chunks of our pension pot to buy a house, at what point will people reach retirement age and have to choose between their home and sufficient liquid capital to pay the bills? In short, this latest proposal is an indictment of policies trying to deal with complex issues, too quickly.No guarantee banks will even accept pension pot deposits
Another major oversight with this new proposal is that it seems to ignore the situation going on right in front of us, regarding mortgage approvals. Having pledged to lower mortgage deposit rates to 5%, the PM didn’t seem to address one of the core reasons why mortgage applications are getting denied so regularly. Certainly, deposit size is an issue, but so too, is the provenance of the deposit. As I was told by a property-focused solicitor, banks don’t just want to know if you have the money, but where it has come from – because that gives a lot of indication of whether they can rely on more coming. For instance, if your mortgage deposit is courtesy of the bank of mum and dad, you’re far more likely to be rejected. What banks want is a deposit generated organically by working groups or individuals, with steady and reliable incomes, not one-off sums followed by promises. I don’t see how this differs from drawing money out of a pension pot. It’s a one-off sum of money that doesn’t exactly reflect your month-to-month ability to pay a mortgage. While pension contributions are based on an individual’s salary, they don’t take account of things like one’s cost of living, job security, or financial prudence. With this in mind, I’m not sure whether banks would accept pension-pot-based deposits – and given what we’ve discussed, that’s probably for the better.Are pensions and property investment ever compatible?
In some capacity, they already are. Indeed, pension funds have invested in real estate for some time, and , according to Ringley Managing Director, Mary-Anne Bowring: “People are correct to look at pensions as a solution to the housing crisis but encouraging young people to pull money from their pension pots to buy a home is deeply irresponsible. “ “There is a historic opportunity to harness pension fund cash that was previously being invested into shopping centres and offices into delivering new homes for rent. Many pension funds are already investing significantly in so-called ‘build to rent’ homes across the UK.” “This asset class is perfect for investment from pension funds, as they require long-term steady income streams to match their liabilities.” “There’s a considerable undersupply of high-quality rental homes in this country and all indicators point to more people renting and for longer, underlining the need to deliver more rental housing.” Of course, this latter point is exactly what Boris is trying to avoid. What he wants is for more people to buy, and to do so at a younge rage. And, though a worthy goal, this latest proposal is short-sighted, and gives little thought to posterity.Barratt Developments shares rise thanks to growth in sales
Barratt Developments shares (LON: BDEV) rose on Wednesday after the housebuilding group shared a trading update for the period from 1 July to 11 October 2020.
The FTSE 100 firm posted 4032 agreed sales for the period, a 24% increase from the year previously – helped by pent-up demand and the Help to Buy scheme.
Total forward sales reached 15,135 homes, up from 12,963 a year ago, and totaled a value of £3.6m.
“Our sites continue to operate safely and successfully across the country, including areas of local lockdown, enabled by our extensive COVID-19 working practices and protocols. Construction activity remains in line with FY21 planned output, with an average of 294 equivalent homes constructed per week in the period,” said the group in a statement.
Whilst mortgage rates remain relatively attractive, since the pandemic Barratt Developments has seen a material change in loan to value (LTV) lending criteria with no mainstream mortgage lenders providing mortgages at 95% LTV for new-build homebuyers. This has increased the reliance of first-time buyers on Help to Buy. Between July and October, 51% of the group’s private reservations used Help to Buy.
David Thomas, the housebuilder’s chief executive, commented: “Health and safety remains our number one priority and we remain focused on keeping our people safe while we rebuild completion volumes, bring further operational improvements to our business, and deliver on our commitment to build the highest quality homes across the country.
“There is continuing strong customer demand for our homes and we have a healthy forward order book. As we look ahead, whilst significant economic and political uncertainties persist, we believe our disciplined approach and strong balance sheet provide us with the resilience and flexibility to react positively to future challenges.”
Amid the economic and political uncertainty, the group has ensured investors they remain in a strong position.
Barratt Developments shares (LON: BDEV) are trading +2.28% at 556,20 (1308GMT).
Kainos shares surge 28% on “strong trading performance”
Kainos shares (LON: KNOS) surged 28% on Wednesday morning after the IT provider shared a “very strong trading performance”.
Customer demand remained high from 1 April 2020 to date and the group expects full-year results ending 31 March 2021 to be ahead of expectations.
“As referenced in our September update, our Digital Services customers continue to prioritise digital transformation programmes in the NHS and Public Sector, and as a trusted partner to the UK Government, we continue to support these critical, long-term programmes,” said the group in a statement.
“Our Workday Practice continues to benefit from its international scale and an ability to secure new consulting contracts across all our geographies. Alongside these engagements, our specialist Workday automated testing platform, Smart, continues to support over 200 international clients and to drive new client acquisition, especially within the US market.”
The FTSE 250-listed firm also said that trading had been strengthened from several changes including increased utilisation and reductions in recruitment, training and travel expenditure.
Earlier this year, the group acquired Intuitive Technologies LLC. Commenting on the acquisition Brendan Mooney, CEO, said: “I am delighted to welcome the IntuitiveTEK team to Kainos, and into our ever-expanding Workday practice. The team’s expertise, excellent reputation, and passion for building strong customer relationships aligns with our business, and we look forward to having them on board.
“As a leading Workday partner, we see this acquisition as an important step to deepen our expertise in Adaptive Insights Business Planning Cloud in the United States, where we continue to see growing demand from clients in modernizing their planning and financial management processes,” he added.
Results for the six months ending 30 September 2020 will be made on 16 November.
Kainos shares (LON: KNOS) are currently trading 27.84% higher at 1.304,00 (1051GMT).
G4S shares dip as revenue falls
G4S shares (LON: GFS) dipped 2% on Wednesday’s opening after the group reported a fall in revenue for the first nine months of the year.
Revenue fell 2% over the period, however, the group saw profits for the same period ahead of last year thanks to “tight direct and indirect cost control and reduced interest costs.”
“G4S today is a focused global business delivering integrated security solutions which combine our risk consulting, security, technology and data analytics capabilities,” said chief executive, Ashley Almanza.
“The benefits of our strategy, strong execution and rapid response to Covid-19 continue to be reflected in the group’s results during 2020 with resilient revenue, earnings and cash flow.
“I would like to thank our customers and employees for their commitment to G4S during these challenging times,” Almanza added.
The group is currently in a hostile takeover bid with Gardaworld. Gardaworld has appealed to G4S shareholders by and has criticised the firm’s directors and accused them of acting in a “cavalier manner” after directors have rejected several approaches in recent months.
G4S shares (LON: GFS) have recovered and are steady at 209,70 (1037GMT).
IMF World Economic Outlook predicts ‘deep recession’ with 4.4% global contraction
In its latest, unsurprising but painful prognostication, the IMF World Economic Outlook projected what it described as a ‘deep recession’, with global growth expected to fall to -4.4%.
Speaking ahead of the WEO forecast, IMF chief economist Gita Gopinath said:
“So we continue to project a deep recession in 2020 with global growth projected to be -4.4%. This is a small upgrade relative to our June numbers. We expect growth to rebound partially in 2021, coming back to 5.2 percent. However, with the exception of China, all advanced economies and emerging and developing economies, excluding China we are projecting output will remain below 2019 levels well into 2021. Therefore, we see that the recovery from this catastrophic collapse will likely be long and even highly uncertain,”
Gospinath argued that as world economies attempt to bounce back from COVID turmoil, there are challenges yet to be faced, but also a real opportunity for the situation to improve.
“There are broad risks to the upside and to the downside. On the upside, we could have positive development in terms of treatments and vaccines that could hasten the end of this health crisis. And we could also have more policy support that would help. But there are many downside risks. We could have worse news on the health front, and we could have greater financial turmoil at a time when debt is at the highest level in recorded history. And we have rising geopolitical tensions that could also derail the recovery,” she said from her home in Boston.
She added that the road to recovery will be a difficult one, but offered some suggestions on how policies could be designed to put economies back on a growth trajectory.
“First, it is essential that fiscal and monetary policy are not prematurely withdrawn as this crisis is far from over. Second, we need much greater international collaboration to end this health crisis by making sure that when once new treatments and vaccines are available, then it will be produced a sufficient scale to be available widely in all countries. And lastly, policies should be designed towards putting economies on a path towards more sustainable, inclusive and prosperous growth,”
Despite Gospinath’s cautiously optimistic outlook, the IMF red growth percentage will be another reason for global equities to feel the burn at the start of a challenging week.
Political tensions leave a bitter taste, with Brexit and the US Presidential Election creating opportunity for unknown downsides and poor sentiment between now and Christmas.
Pressure now mounts on policymakers, to decide whether or not lockdown part 2 is the correct path. The WHO are stressing that lockdown should be avoided if possible, and stated that the lockdown earlier in the year – as a result of diminished trade and travel – pushed around of quarter of a billion people back into poverty. All most of us can do is shelter our money, and hold on for what will likely be a harsh winter.