Royal Mail lowers letter volumes guidance, shares slide
Royal Mail (LON:RMG) released a trading update for the nine months to 23 December 2018 on Tuesday. Its recent trading performance remains “broadly” in line with its expectations. However, it has downgraded its letter volume guidance. Shares in the company slid by almost 10% on the back of the announcement.
Group revenue increased by 2%.
The group is now expected to deliver an adjusted group operating profit before transformation costs of £500-£530 million for the 2018-2019 year.
Over the period, Royal Mail revealed a 25% drop in its first-half profits. This is following the announcement of a profit warning in October, whereby shares crashed 18%. It also purchased the Canadian parcel delivery firm, Dicom Canada.
UK shares stall as FTSE 100 dips beneath 6,800 hit by strong sterling
UK shares fell on Monday with the FTSE 100 dropping beneath 6,800 as investors reduced positions a head of a potentially turbulent week.
UK parliament is set to reignite the Brexit debate with vigour on Tuesday as MPs remain bitterly opposed on the best way forward.
With the 29th March leave date fast approaching, Theresa May is yet to secure a consensus from MPs on how the UK will leave the EU.
Theresa May faced a crushing defeat in early January and is working towards aligning MPs for a potential second parliamentary vote.
While the process is pushing the UK economy towards the cliff edge of a no-deal Brexit, financial markets have reacted by pushing the pound higher against the dollar.
Analyst attribute this to the increased chance of a softer form of Brexit that is likely to win parliamentary approval.
“We would read the developments over the last week as pointing toward a later, softer Brexit or potentially no Brexit at all.” said Zach Pandl of Goldman Sachs in an interview on Bloomberg television.
Highlighting the banks bullishness on sterling Pandl said Goldmans thought the pound would be the “highest-performing G-10 exchange rate this year.”
While this would be good for the UK’s importers, it has caused a negative impact on the FTSE 100.
There has been a significant inverse relationship between sterling and the FTSE 100 since the vote to leave the EU with the FTSE 100 reaching all time highs as sterling plummeted.
This relationship has been turned on its head during a Westminster impasse that has made a ‘no-deal’ or ‘hard Brexit’ the city’s outside bet.
Shares in mainland Europe were also weaker on Monday as the reopening of the US government failed to inspire a global relief rally in equities.
Looking towards the US and the interest rate decision later this week, investors will get the first major instalment of insight from the Federal Reserve on whether they still though two or three interest hikes were appropriate for the US economy in 2019.
Sirius woes could spell long-term opportunity
Sirius Minerals Plc (LON:SXX) have been in a state of flux since last August, with the company agreeing a potash supply deal with Brazilian company Cibra, and this week’s announcement that the company are to implement a financial restructure of its potash project in Yorkshire.
Sirius’ involvement in Cibra
The deal with Cibra outlines a take-or-pay potash supply arrangement with Brazil’s Cibrafertil Companhia Brasileira de Fertilizantes, for supply and resale of POLY4 in Brazil and certain South American countries. Chris Fraser, Sirius Minerals chief executive, has said, “We are delighted to have signed these supply and investment agreements with a leading player in the South American fertilizer market with a proven track record and ambitious growth plans,” Cibra chief executive Santiago Franco, meanwhile, added, “We are excited to be entering into this long-term partnership with Sirius to deliver POLY4 into Brazil and other key markets of South America.” “POLY4 will change the shape of the fertilizer market in South America and Cibra will be at the heart of driving the growth and adoption of this innovative sustainable product across the region.”The Sirius trading update and financial restructuring
Following the trading update, Sirius Minerals agreed to revise the basis of a $3 billion funding round for its fertiliser project in Yorkshire. The crux of this restructure is that the UK government’s role in financing the new project will be smaller than originally planned. Chris Fraser commented on the trading update, “2018 was a year of significant progress for the Company. Completion of procurement to support the stage 2 financing and the signing of an additional 4.8 Mtpa of take-or-pay supply agreements, have been substantial achievements. Considerable progress has been made across all our construction sites and development activities are advancing at pace. More than 800 people are now employed on the Project, demonstrating the transformational potential for jobs and growth in the local area. “Executing our stage 2 financing plan remains our priority. We continue to make progress towards obtaining stage 2 financing commitments and are working constructively with all relevant parties to achieve this. The process with the lenders is continuing this quarter as we work through the due diligence reports with the lending group and progress discussions on the revised debt structure.”What can Sirius investors expect in coming months?
With a plethora of updates, ongoing talks and targets yet to be realised, future prospects currently look shaky for the firm. Ultimately, since last August, Sirius has suffered from a vicious cycle of having limited financial prospects and in turn uncertainty among investors, with each factor exacerbating the other. The firm have seen their share price fall 50 percent since August 2018, with the cost of their Yorkshire project increasing, commodities prices working inversely against a climbing dollar and expectations that the first POLY4 fertiliser isn’t going to be delivered until 2021. Overall, one should expect these factors to weigh on investor confidence in coming months and assume that share prices will remain volatile as 2019 continues. In the long-run however, Sirius could represent an exciting opportunity, with shares currently trading 60 percent below all-time highs of around 45p per share and ongoing discussions with lenders – to-date – being described as largely positive. Sirius Minerals shares are currently trading up 0.73p or 3.81% since markets opened on Friday, at 19.87p per share. Liberum Capital analysts have reiterated their ‘Buy’ stance on Sirius stock.Vodafone sales drop as foreign exchange and a change in reporting standards bite
Vodafone (LON:VOD) shares fell on Friday after the telecommunications group released sales figures that pointed to a drop in group revenue.
In the three months to 31st December, Vodafone’s reported revenue fell 6.8% to €10.99 billion from €11.79 billion.
The group attributed the decline in sales to a number of factors including the sales of the Qatari business, changing reporting standards and the negative impact of foreign exchange.
Vodafone reported sales figures broken down into Europe and Rest of the World with both areas falling 5.6% and 11.1% respectively.
Weakness in Europe was found in Italy and Spain where increased price competition hurt sales.
Nick Read, Group Chief Executive, commented on the trading update:
“We have executed at pace this quarter and have improved the consistency of our commercial performance. Lower mobile contract churn across our markets and improved customer trends in Italy and Spain are encouraging, however these have not yet translated into our financial results, with a similar revenue trend in Europe to Q2. We enjoyed good growth across our emerging markets with the exception of South Africa, which was impacted by our pricing transformation initiatives and a challenging macroeconomic environment. Overall, this performance underpins our confidence in our full year guidance.
“We are moving to implement a radically simpler operating model and to accelerate our digital transformation, as demonstrated by the organisational changes we have announced in Spain and the UK.”
“We are also assessing opportunities across our markets to improve asset utilisation through partnering. This week we announced the intention to extend our existing network sharing agreement with Telefonica O2 in the UK to include 5G services. This will enable us to deploy 5G services to more customers over a wider geographic area, and to do so at a lower cost. After these arrangements have been finalised, we also intend to explore opportunities to monetise our UK tower assets”.
Shares in Vodafone (LON:VOD) were down over 2% in early Friday morning trade.
Ford: hard Brexit will cost us £615 million in 2019 alone
Carmaker Ford (NYSE:F) has warned that a hard Brexit might cost it up to £615 million in 2019 alone in an exclusive statement to Sky News.
Ford issued a statement to Sky on Thursday, where a spokesperson outlined:
“Our planning assumptions for Brexit include a negotiated exit as the most likely outcome, with a transition period during 2019 and 2020 if the withdrawal package is approved by UK parliament.”
“However, we recognise that the situation is highly uncertain, and are monitoring events closely. In the event of a no-deal scenario the resulting border friction, deteriorating economic outlook, coupled with likely further sterling devaluation, and introduction of WTO tariffs would severely impact Ford’s operations in the UK and across Europe and could potentially result in an $800m headwind in 2019.”
According to information obtained by Sky News, the carmaker has privately calculated the economic risk that a hard Brexit may cause for its business.
In October last year, the group’s European boss, Steven Armstrong, warned that a no-deal Brexit could be “pretty disastrous” for its UK operations. Today we have learnt just how much that disaster will cost for the first year alone of a hard exit from the European Union.
With significant parliamentary chaos unravelling in the first four weeks of the year alone, a departure from the European Union without a deal that can command support in Parliament is looking ever more likely. In fact, it is highly probable that Brexit could lead to another recession.
Ford isn’t the only car manufacturer to warn against a hard Brexit. Jaguar Land Rover’s boss, Ralf Speth, warned Theresa May that UK factories risk huge job cuts if she does not “get the right deal” prior to the nation’s departure.
The motor vehicle sector is not alone in expressing its concerns. Just yesterday luxury fashion brand Burberry (LON:BRBY) warned that “the biggest concern is the disruption to the supply chain”, chief operating and financial officer Julie Brown commented.
Tower Resources announce £1.7m capital raise for Cameroon project
Tower Resources (LON:TWR) announced on Thursday plans to raise £1.7 million in capital to fund its Cameroon project.
The oil and gas company said it plans to raise the funds through the placing of 170 million new ordinary shares at 1p each.
Admission of the shares on the AIM market is set to take place at 8am on the 30th January 2019.
Back in December, Tower Resources updated the market on progress at NJOM-3 well in Cameroon.
In the statement, the company announced the signing of a contract with Vantage Drilling International for the Topaz Driller to continue its operations in the region.
Jeremy Asher, Chairman and CEO commented at the time of the news release:
“We are very pleased to have secured the Topaz Driller, the same rig which our well management team at Bedrock Drilling used to drill the two recent Etinde wells. We see the NJOM-3 well, in Q2 2019, as just the beginning of our drilling activity on the Thali license, as we explained in our Corporate Presentation of last month. The rig timing remains consistent with that schedule, including its target of first oil by the end of 2019.”
The company was first admitted to the junior AIM market on the London Stock Exchange in 2005. It focuses its operations in Africa, with projects in Cameroon, Namibia, South Africa and Western Sahara. Shares in Tower Resources are currently trading -25.63% on the back of the announcement. Elsewhere across the markets, shares in premium fizzy drink-maker Fever-Tree (LON:FEVR) rallied after the company revealed a 39% rise in revenue. Meanwhile, Daily Mail and General Trust (LON:DGMT) ticked up after the media company maintained its full-year outlook.Fever-Tree revenue up 39%, shares rise
Fever-Tree shares (LON:FEVR) rose on Thursday after the beverage company reported a rise in revenue for the year.
The premium fizzy drink maker said it expects full-year revenue to be around £236 million, a 39% increase on 2017 figures.
This was attributed to strong trading in the UK, particularly across the summer months and the Christmas period, with sales up 52%.
In addition, the group enjoyed strong progress in the US, with full-year revenue up 21% compared to the year before.
Fever-Tree said there was also an increase in sales in Europe during the second half of the year, with full year revenue expected to be up around 24%.
Sales in the rest of the world also proved encouraging, up roughly 48% for the period.
Tim Warrillow, Co-founder and CEO of Fever-Tree said:
“We have seen very strong momentum across the business during 2018. The UK delivered an exceptional performance while Europe has seen positive performance resulting in growth accelerating in the second half. We are particularly encouraged by the progress to date in the USA and the strong platform for further growth this provides.
The progress we have seen during the last 12 months means we enter 2019 very well positioned and remain optimistic about the long-term global opportunity ahead.”
Warrilow also remained confident that the firm was well positioned in light of changing consumer drink tastes. He added:
“Drinking habits are changing. The rise of premium spirits and the advent of premium mixers has reinvigorated and re-established the quality and enjoyment of the long-mixed drink, be it a gin & tonic, vodka & ginger beer or whiskey & ginger ale to name but a few. Fever-Tree is at the forefront of this trend, broadening the appeal of the spirits category, drawing in new consumers and with it providing a genuine alternative to the beer and wine occasion.”
Shares in Fever-Tree are currently +14.35% as of 12:37PM (GMT).
3 reasons why Brexit could lead to a recession
With a mere 64 days to go until Britain is due to leave the EU, the government is no closer to securing a deal that can command support in Parliament.
For many Brexiteers, leaving the EU was seen as a way to take control of the UK’s economic and political destiny.
However, with no discernible plan in place it seems Britain is at present – a rudderless ship.
As many UK-based companies keep on warning, there is nothing businesses hate more than uncertainty, and so far, Brexit seems to denote just that.
Today, Airbus called Brexit ‘a disgrace’ after announcing potential closures to many of its UK factories.
Yesterday, luxury fashion brand Burberry expressed concern over the cost a no-deal could have upon its business.
Whilst many have dismissed economic warnings as scaremongering, many of the UK’s biggest businesses are starting to sound the alarm.
Here we consider three reasons why Brexit – plan or no plan – may very well plunge the UK into a recession.
- A cooling property market
UK retail sector cuts 70,000 jobs at end of 2018
The British Retail Consortium (BRC) has reported that roughly 70,000 jobs in the UK retail sector were slashed in the final months of 2018. Almost a third of retailers plan to make further staff cuts over the next few months.
Chief executive of the BRC, Helen Dickinson, commented on the announcement:
“The retail industry is undergoing a profound change and the latest employment data underpins those trends.
“Technology is changing both the way consumers shop but also the types of jobs that exist in retail.”
“While we expect the number of frontline staff to fall over the next decade, there will be many new jobs created in areas such as digital marketing and AI (artificial intelligence).”
“However, this transformation comes at a cost for retailers, who are already weighed down by the increasing costs of public policy, from sky high business rates to rising minimum wage.”
“To support this investment in the future of retail, Government needs to play its part, reforming the broken business rates system to ensure it is fit for the 21st century.”
It has by no means been kept a secret that retailers struggled over Christmas, the busiest time a year as consumers rush to get their gifts. Perhaps the most shocking announcement during the lead up to Christmas was the highly unexpected profit warning trading update from ASOS (LON:ASC).
Throughout 2018, we have seen retailer after retailer issuing warnings as they battles with the difficult economic climate. Leading department store John Lewis reported a 99% drop in its profits, announcing that it would slash 270 jobs.
Not to mention the Brexit chaos that has fuelled economic uncertainty in the UK, adding to the climate of insecurity.
Even over the post-Christmas sales period, footfall was unable to pick up despite the significant price drops.
It certainly is not all doom and gloom, as some retailers have posted their Christmas results, outlining positive sales growth.
However, an amalgamation of factors beyond Brexit uncertainty is proving to be problematic for the UK retail sector.
Anglo American annual output increases 7%
Anglo American (LON:AAL) released a production report on Thursday for the fourth quarter ended 31 December. Copper and Diamond production are expected to decline in 2019.
Total production on a copper equivalent basis for the fourth-quarter of 2018 increased by 7%. This figure is compared to the same period in 2017 and excludes the effect of the stoppage at Minas-Rio.
Chief Executive of Anglo American, Mark Cutifani, commented on the announcement:
“Our continuing focus on efficiency and productivity improvements across the business resulted in another strong quarter, adding to our consistent track record of delivery. Solid operational performance resulted in a 23% increase in production from our Copper business, more than offsetting the impact of infrastructure constraints at Kumba. We ended this successful quarter with the restart of operations at Minas-Rio and receipt of a key approval relating to the important Step 3 licence area that supports its increase in production towards design capacity.”
Da Beers production increased by 12% to 9.1 million caratas and driven by production increases at Orapa. Additionally, copper production increased by 23% to 183,000 tonnes. Increases occurred across all operations and reflect a strong operational performance.
In July, Anglo American began to develop the “world-class Quellaveco copper project in Peru”.
Platinum and palladium production increased by 3% to 602,300 ounces and 386,000 ounces respectively. However, Kumba’s iron ore production decreased by 13% to 10.2 million tonnes, as a result of infrastructure issues.
Metallurgical coal production increased by 15% to 5.6 million tonnes. But, Thermal coal export production decreased by 9% to 6.9 million tonnes as a result of unfavourable weather.
Minas-Rio recommenced its operations at the end of the quarter.
Anglo American has predicted that diamond, copper and platinum production in 2019 will be below that of the year prior.
Diamond production is expected in the range of 31 million to 33 million carats for 2019. This is below the 35.2 million carats reported the year prior. Equally, copper production was expected to be between 630,000 to 660,000 tones, below the 668,300 seen this year. Platinum production was also reduced to 2.0 million to 2.1 million ounces in 2019, revised from the 2.0 million to 2.2 million ounces previously.
At 09:17 GMT today, shares in Anglo American plc (LON:AAL) were trading at -0.3%.