Brexit legal advice published, issues of contempt
After losing three votes in one day on Tuesday, Theresa May’s government are being made to publish the Brexit legal advice, with MPs finding the government to be acting ‘in contempt of Parliament’.
While there was some upshot for the prime minister – in that Jacob Rees-Mogg’s vigilante faction seems to have been pacified for the time-being – what follows yesterday’s votes could be a drawn out process of pretty much ‘more of the same’. With next Tuesday’s vote on the Withdrawal Agreement likely to come crashing down, comments from MP Dominic Grieve are already moving towards a motion for a ‘Plan B’ proposal if nothing is agreed by January.
Lloyds share price resumes decline after May’s defeat
Lloyds share price (LON:LLOY) resumed a 10-month downtrend following Theresa May’s historical defeat in the House of Commons.
Lloyds shares fell on Wednesday morning after the UK Prime Minister’s government was found to be in contempt of parliament after losing a parliamentary vote by 18 votes.
Shares in Lloyds fell as low as 54.29p before rebounding.
It was the first time in history a government had been found to be in contempt of parliament, a serious matter that resulted in the government being forced to publish the full legal advice it had wanted to keep secret.
The impact on Lloyds share price and the rest of the banking sector has not be driven so much by Theresa May’s triple defeat on Tuesday but more the chances of her Brexit deal being passed looking ever more unlikely.
Tuesday’s contempt vote was followed by Brexit debate where numerous MPs said they would vote against her deal.
The outcome of the parliaments meaning vote 11th December could see the UK hurtling towards a ‘No-deal’ scenario, and the worst outcome for markets, particularly shares in UK banks.
Both the government and the Bank of England have warned leaving the EU without a deal would lead to significant reduction in UK GDP over the long term.
Today’s move in Lloyds share price is evidence investors will not be hanging around in bank shares to see the full impact.
Despite posting a strong start to 2018, Lloyds share price has been in steady decline entering a technical bear market with a decline of over 20% from highs of 72.3p to a closing low of 54.5p.
The decline comes in-spite of an 18% increase in statutory profit after tax to £3.7 billion in the nine months to 30th September.
Lloyds profitability
The Bank of England recently published stress tests on UK banks which highlighted the banks were adequately capitalised to deal with any negative economic fall out. However, such a scenario is likely to impact heavily on the banks’ profitability. The Bank of England predicted the UK economy could enter recession and contract by 8%, such a reduction would hit Lloyds’ profitability significantly despite being well capitalised. Mark Carney also told the Treasury Select Committee prices food prices could rise between 5-10% putting further pressure on households, this in turn could increase the rate of defaults on debt provided by banks such as Lloyds.
A torrid 2018 for Lloyds shares
Despite posting a strong start to 2018, Lloyds share price has been in steady decline entering a technical bear market with a decline of over 20% from highs of 72.3p to a closing low of 54.5p.
The decline comes in-spite of an 18% increase in statutory profit after tax to £3.7 billion in the nine months to 30th September.
Joules reveals 17% rise in revenue, shares up 7.8%
Joules has announced a 17.6% rise in revenue in the 26 weeks to 25 November. The fashion retailer has raised its first-half underlying profit expectations.
The group has also said that it will be carrying out contingency plans in the form of a third-party distribution facility in the EU to prevent disruption amid a hard Brexit.
Joules said: “These plans include establishing an EU-based third-party distribution facility; scheduling earlier inbound product deliveries for our spring/summer 2019 ranges; preparation for expected increased administrative activities; and hedging US dollar requirements more than 12 months forward.”
The group “anticipates that trading conditions in the UK will remain challenging over the near term, with continued macroeconomic uncertainty, rapidly changing consumer shopping behaviours and a highly competitive environment.”
Additionally, the fashion retailer has ordered in the Spring/Summer 2019 collection earlier than usual in order to prevent Brexit disruption and possible devaluing of the pound.
Chief executive Colin Porter said: “I am delighted to update on what has been another period of strong performance for Joules despite challenging trading conditions.”
“This performance, which is ahead of our initial expectations for the Period, is a testament to the strength of the Joules brand, the engagement of our loyal customers with our product collections, and our fantastic teams.”
“In the UK, our ‘total retail’ cross-channel model, underpinned by investment in infrastructure, has proven to be well suited to today’s rapidly changing consumer shopping behaviours. In addition, our international wholesale business continues to make excellent progress by both increasing sales to existing accounts and developing new accounts.”
“We have an outstanding brand, good momentum and a growing customer base and we look forward to the second half of the financial year with confidence.”
The interim financial results will be announced on 23 January.
In morning trade, shares in the group (LON: JOUL) are trading +7.83% (0953GMT).
CAA takes legal action against Ryanair
Ryanair is facing legal action over its refusal to compensate thousands of customers.
The Civil Aviation Authority has said that customers who had flights cancelled over summer are entitled to compensation under EU law.
Strikes over summer led to many flights to be delayed or cancelled, affecting thousands of UK passengers.
The airline has defended itself and says it does not owe passengers compensation because the strikes were “extraordinary circumstances”.
“Courts in Germany, Spain and Italy have already ruled that strikes are an ‘exceptional circumstance’ and EU261 compensation does not apply. We expect the UK CAA and courts will follow this precedent,” said Ryanair in a statement.
Under EU legislation, passengers can make an EU261 claim when flights are delayed by three hours or more, flights are cancelled or when they are denied boarding.
“As a result of Ryanair’s action, passengers with an existing claim will now have to await the outcome of the Civil Aviation Authority’s enforcement action,” said the CAA.
Rory Boland, the Which? travel editor, said: “Customers would have been outraged that Ryanair attempted to shirk its responsibilities by refusing to pay out compensation for cancelling services during the summer – which left hard-working families stranded with holiday plans stalled.”
“It is right that the CAA is now taking legal action against Ryanair on the basis that such strikes were not ‘extraordinary circumstances’ and should not be exempt, to ensure that the airline must finally do the right thing by its customers and pay the compensation owed.”
Shares in Ryanair (LON: RYA) are trading at 11,44 (0929GMT).
Department store spending continues to fall
New data has shown that spending in department stores has fallen for the 13th consecutive month.
Data from Barclaycard users’ spending showed that spending in department stores across the UK has fallen by 7.1% year on year.
The sector remains one of the hardest hit as stores struggle amid the rise of online rivals, the decline in consumer confidence and Brexit uncertainty.
Whilst John Lewis reported record sales during Black Friday week and revealed 7.7% rise in sales compared to the same week a year previous, sales went on to fall almost 6% after the US-inspired retail holiday.
Laura Suter, a personal finance analyst at investment firm AJ Bell, said: “Department stores took a pummelling in November. The problems faced by the likes of House of Fraser and Debenhams, and questions about the stores’ future, have likely put many off shopping with the brands.”
The news comes after Mike Ashley blasted MPs on the lack of effort going onto the dying high street.
The Sports Direct (LON: SPD) boss told MPs on Tuesday that a 20% retail tax was necessary on retailers that make more than a fifth of their sales online.
“It is not my fault the high street is dying; it’s not House of Fraser, not Marks & Spencer (LON: MKS) or Debenhams’ (LON: DEB) fault,” said Ashley.
“It is very simple why the high street is dying. It is the internet that is killing the high street. The vast majority of the high street has already died. In the bottom of the swimming pool, dead.”
A spokesperson from the Treasury said on Ashley’s tax suggestion: “As the chancellor made clear in the Budget, an online sales tax would be passed onto consumers. That’s why we’re putting £675 million into a Future High Streets Fund instead to help high streets to evolve.”
Numis profits sink 17% after hiring spree, shares fall
Profits at the stockbroker Numis dropped by 17% in the year until 30 September.
The group announced on Wednesday that pre-tax profit fell to £38.3 million due to increased investment in staff numbers.
Staff costs at the broker were up by 10.6% to £64.7 million. Additionally, non-staff costs on technology also increased to £31 million.
Despite the fall in profits, revenue for the year was up 4.6% at £136 million.
”Profits were down but that’s the result of a deliberate and significant investment during the period which we think is for the good of the company,” said Ross Mitchinson, Numis’ co-chief executive.
“It is always right to hire brilliant people,” he added.
Co-chief executive Alex Ham said: “In the 12-24 months post-Mifid II there will probably be some forced consolidation among our competitors but it is not something we worry about.”
“We are floating [investment platform] AJ Bell today and brilliant, first-class entrepreneur-led businesses like that will be well-received, but the market has become more selective.”
In September, the share price in the group plunged after the firm warned of a dent to future profits amid an increase in new employees.
“Investment in talented individuals across the business has been a key priority during the year as we seek to strengthen and diversify the business for the future,” said Numis co-chief executives Alex Ham and Ross Mitchinson.
“Our track record and reputation has been a significant factor in our ability to attract highly respected individuals to the business.”
On Brexit, the co-chief executive said it was “causing uncertainty right now, you can see there is less activity than there has been.”
Shares in Numis (LON: NUM) are trading down 1.99% (0846GMT)
Patisserie Valerie appoints new CFO
Nick Perrin has been appointed as the new interim CFO at Patisserie Valerie.
After the previous CFO, Chris Marsh, was suspended and then left the cake retail chain amid an accounting scandal, Patisserie Valerie continues to search for a permanent replacement.
“I am pleased to welcome Nick to Patisserie Holdings,” said Steve Francis, boss of the group.
“I am pleased to welcome Nick to Patisserie Holdings. He brings with him the necessary experience to help strengthen the team as the company works tirelessly to put the events of the past months behind it and look forward to the future.”
Perrin comes from the AIM-quoted vet services provider CVS.
Marsh left the chain after a £40 million black hole was discovered. He was arrested on bail and is under investigation by the Financial Reporting Council, who is also investigating audits provided by Grant Thornton.
A spokesperson for Grant Thornton said: “I can confirm we have received a letter from the Financial Reporting Council informing us of its decision to commence an investigation, and we will, of course, fully cooperate in this matter.”
The bakery chain is in talks to find a successor to Grant Thornton.
In the wake of the scandal, chief executive Paul May also stepped down from the group, who was replaced by Francis.
“I am delighted to welcome Steve Francis as new chief executive at Patisserie Holdings plc,” said Chairman Luke Johnson on Francis’s welcome.
“He has a strong track record of restoring value in turnaround situations, especially in the food industry, and the board looks forward to working with him in the revival of the business.”
Toyota boss: no-deal Brexit would be “disastrous”
The deputy managing director of Toyota has warned against the effects that a no-deal Brexit would have on the car manufacturer.
Tony Walker told MPs on Tuesday that a disorderly Brexit would be “disastrous” to UK operations and would cost up to £10 million a day.
Speaking to a parliamentary select committee, Toyota’s deputy managing director said that Theresa May’s deal has provided more clarity for businesses and is “much better than the confusion we have had. I don’t think I am alone in business in saying that”.
“To say because it is not perfect we should go back to square one is not understandable to us as business people.”
If the UK is to crash out of the EU, it would create havoc to its supply chain.
“We do not just have the 50 trucks, we have to have them in sequence, it is no good if we have 49 trucks and truck 17 is missing. [Production] will then stop. So without the withdrawal agreement and withdrawing with a no deal, we would have stop-start production for weeks, possibly months. It would be very, very difficult for us to cope with,” he said.
“The value of the cars we make is £10 million a day. If we lose that sort of value it’s very, very challenging for us.”
Adding to MPs on the future of Brexit, Walker said: “We strongly ask that the transition period doesn’t become the negotiation period and we would strongly ask that we don’t end up three, four months to go, a bit like this time, with another cliff edge with a very short time to implement.”
Airbus has also supported the prime minister’s deal, with the group’s senior UK vice president calling it a “step forward”.
MPs will vote on May’s deal on 11 December.
Shares in Toyota (TYO: 7203) are trading -1.72% (1527GMT).
The Financial Crisis One Decade On: The Rise of FinTech
Ten years ago, our trust in legacy banking institutions was rocked by the 2008 financial crisis. This left the atmosphere ripe for a new finance sub-sector to emerge and flourish, making use of sophisticated technology– dubbed “fintech”. In the first part of this series, we explored the changes that occurred during this tumultuous decade; now in this second and final piece, we will explore the rise of fintech companies.
Humble beginnings
In 2008, the term fintech had not yet entered the mainstream lexicon, but a handful of platforms were already paving the way. These were niche platforms, such as MyFootballClub (2008), which allowed fans to come together to buy a football club, or Slice The Pie (2008), who paid music lovers for referring the best up and coming artists. Sadly, many of these fan-based platforms are no longer around but have left a legacy by sowing the seeds of a fintech revolution. From these humble beginnings, fintech in the UK is now estimated to generate £20 billion in annual revenueand employ over 60,000 people.Trust and transparency
While many established financial service companies were complicit in the financial crash, fintech in comparison is perceived as being fair and trustworthy by their customer base. Their low fees, quick, personal service and fresh, often informal, demeanour set them apart as companies to be trusted. Moreover, with their high levels of transparency, it is perceived as unlikely they would ever sell packaged subprime loans, often cited as the cause of the Financial Crisis.What are the different types of fintech companies?
One of the main differentiators between fintechs and legacy institutions is their level of customer service and fees. Fintech companies use technology to lower transaction costs between buyers and sellers of financial services, and in some instances act as marketplaces allowing individuals and/or companies to transact with one another directly– no middlemen required. Fintech covers a broad range of subcategories of financial services with notable groupings including the following: Payments:utilising smartphones and tablets, they provide quick and cheap transactions between customers and businesses with small start-up cost or for free between friends. Equity Crowdfunding:allowing retail investors to invest in early stage, high-growth companies, who are selling shares to raise equity. In 2017 total volumes in the UK reached £217.7 million. Peer to Peer Lending:these companies allow individuals to lend money to businesses seeking investment for growth. Without the slow bureaucracy of standard banking, the companies can access funding much more quickly and at cheaper rates. Meanwhile, individuals can access the high rates of return which were previously only enjoyed by the banks. Some platforms, such as Crowd2Fund, go one step further by allowing businesses and investors to communicate directly. This means the investors can choose the businesses they have a personal affinity with and the businesses not only gain investors but new customers and brand advocates. Challenger banks:with many offering an exclusively mobile service, enabling consumers to conduct transactions from their smart devices and receive real-time notifications related to their spending. Some companies even empower those in unbanked and economically deprived areas to transact in the digital economy by providing a prepaid debit card service. P2P Currency Transfer: by matchmaking individuals seeking to sell currency to those seeking to buy it, they fulfil orders within a few minutes and have very clear small fees. Insurtech:offering highly competitive prices to the end user, they make use of technologies to both reduce operating costs and reward lower risk behaviours such as safe driving, tracked by GPS, or healthy living, tracked by wearable activities monitors.Why has fintech thrived in the UK?
A history of world-class financial services Globally, there are a handful of hotspots for tech start-ups and London, in particular, has a reputation for financial tech. This is in part owed to the centuries-old tradition of finance in the capital. For example, one of the worlds first business insurers, Lloyds banking group, was founded in London just over 250 years ago. Recently, in the 1980s, London was once again at the forefront of financial services with the “Big Bang” dramatically deregulating financial markets. This led to London consolidating its position as a global innovator, making it an attractive place to start a fintech company. Access to talent The UK is fortunate to be home to some of the world’s leading universities. Imperial, Oxford, and Cambridge are ranked in the top 10 global universitiesand London’s fintechs benefit from a rich talent pool to build their team from. Moreover, the reputation of being a fintech-hub can be self-perpetuating. The to global talent and expertise in computer science and web development head to the UK to be part of this pioneering industry. Free movement within the EU has resulted in web developers and data scientists from Eastern Europe moving to UK fintech companies to fulfil their economic potential. Whilst freedom of movement is likely to end subsequent to Brexit, tier 1 visas for “exceptional talent” will allow fintechs to continue to access these talented and highly-skilled individuals. Government Support The UK Government recognised and nurtured the potential of the fintech industry by introducing various schemes and initiatives. In 2014 they backed a fintech membership trade body, called Innovate Finance, whose role is to advance the industry. At its launch, just a handful of companies were invited to apply for membership, with Crowd2Fund being the first to offer the Innovative Finance ISA. The government department of UK Trade & Investment regularly put on overseas trade missions and invite members of the innovative finance sector to promote themselves to new international markets. Additionally, in 2015 Eileen Burbidge, who has invested in a number of fintechs such as GoCardless and Monzo, was appointed as the UK Treasury’s special envoy for fintech.Her role is to promote the sector locally and internationally, as well as advising the government how best to support it. Government policies such as SEIS and EIS (mentioned in the first part in this series) have also made it easy for fintechs to access the capital they need to grow. These schemes helped to facilitate over £1.3bn investment into fintech during 2017.What’s next for fintech?
With new innovations such as Open Banking and the FinTech Bridge, the UK is still set to lead the industry globally. Open banking, a new directive, launched in January 2018, giving business and consumers the ability to share their banking data with third parties. This allows fintech companies to analyse the data to provide better lending decisions in less time while enhancing price comparison, to keep prices low for consumers. The FinTech Bridge is a partnership facilitated by the Australian and UK governments, aiming to encourage partnerships between their respective fintech industries, by recognising each other’s regulatory bodies. So, if a company is registered with an Australian regulator, a British company can treat it as if it were also registered in the UK, rather then go through a lengthy procedure of paperwork. Crowd2Fund was one of the first UK companies to take part in the initiative, partnering with the Australian based AI debt collection company, InDebted, to bolster their debt collection technologies. With Canada, the USA, China, and Singapore also establishing FinTech Bridges with the UK, the industry is set to scale even further. The fintech sector may have only been around a decade or so, but the pace of innovation and growth isn’t likely to slow down any time soon.Martin Sorrell announces a second acquisition in blow to WPP
Sir Martin Sorrell ‘s S4 Capital has confirmed a second acquisition, agreeing to buy MightyHive in a $150 million (£117 million) deal.
After Sorrell was forced to leave advertising giant WPP (LON: WPP), he swiftly created his own venture that he said would be “the best form of revenge” against his former employer.
The first acquisition that S4 Capital carried out was in acquiring the Dutch agency, Media Monks.
“This represents a significant step in building a new age, new era, digital agency platform for clients,” said Sorrell about his first deal at S4 Capital.
“MediaMonks’ roots are totally in new media, and data, content and technology. Our next moves will be to build this platform further and to add meaningful data analytics and digital media buying. The company will be a unitary one with MediaMonks as its core.”
On his latest deal, he said: “The merger with MightyHive marks an important second strategic step for S4 Capital. The peanut has now morphed into a coconut, and is growing and ripening.”
“Clients of all kinds want services delivered faster, better and cheaper, by more agile and responsive organisations,” he added.
MightyHive made $41 million in revenue and $11 million in profits in the year ending 31 October.
Sorrell was forced out of WPP following an investigation into alleged personal misconduct. He was the longest-serving FTSE 100 chief executive.
WPP employs more than 200,000 staff in 400 businesses working in 112 countries. It is the world’s biggest advertising giant.