October 31, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

It was a good quarter from the pharmaceutical giants, with GlaxoSmithKline and Astra Zeneca both announcing a big jump in profits last week. Profits at GSK were up £200mn to £1.25bn. Its asthma drug, Advair, enjoyed a wheezing free period, with sales up 20%, while sales of its diabetes treatment Avandia/Avandamet increased 22 per cent.

Meanwhile AstraZeneca too saw a sharp jump in profits rising to $1.23mn from $1.14bn. Its two big drugs- Seroquel and Nexium both saw a big lift in sales. But the market has got doubts. The two big sellers from the company are facing competition from generic drugs.

Chief financial officer Jon Symonds said: “Where we believe our intellectual property is strong and has been challenged and is likely to be infringed, we’ll be as vigorous as anyone in protecting our rights.”

October 31, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The digital lawn has become less clear cut. Time was that BSkyB was a TV broadcaster, BT a telecom company and Google a search engine. This month has seen announcements from BSkyB that it’s moving into BT territory, offering broadband internet access, and unbundling BT from the local loop as it builds up a network to ultimately offer TV services over the net. It also announced its purchase of Easynet.

Then BT revealed more details of its move into TV broadcasting, with its plan to offer an internet broadband TV service in combination with Freeview.

Now, it looks as if the one time state monopoly will be moving in on Google’s turf too. According to the Business paper the company is developing a search engine for Internet TV. BT says that its engine will focus on video and audio content, whereas Google is more relevant to text and images. But, of course, Google has its own plans in that direction too.

It does seem to us, that search engines for TV content will replace the TV broadcasters as the TV channels of the future. Video content will be available from new style web sites, and the means to access them will be the next generation search engines. People won’t watch BBC or ITV out of habit, they will watch Google or the equivalent service from Yahoo, Microsoft BT or any one of a host of would be players in the field- and right now the turf is only just being laid.

October 31, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Records are made to be broken, but twice in one day - that’s going some. But that’s what Shell and then Exxon Mobil managed last week - leading to inevitable calls for windfall tax on both sides of the Atlantic, but in an imaginative defence, the world’s largest oil company said that before you criticise it for making too much money, make sure you are not comparing oranges with apples.

Like BP earlier in the week, the hurricanes took their toll. But this time around it’s BP which seems to have the biggest problems, what with the damage to its massive Thunder Horse platform, BP’s profits were less than expected and lower than in the previous quarter.

Royal Dutch Shell, on the other hand, with its new united board, and with the problems of its disappearing oil reserves receding into the background, had a bumper quarter. Despite a fall in oil production from 3.6mn barrels a day last year to 3.2nm this quarter- thanks to the hurricanes, profits rose to a stunning $9.39bn in the third quarter, compared to just $5.62 a year ago. Profits for the last six months came in at $17.5bn, compared to $17.6bn in the whole of 2004.

But just as analysts were taking in the huge scale of Shell’s results - along came Exxon Mobil with even bigger profits - net income of $9.92bn - the biggest in US corporate history, and the company is on course to enjoy the highest level of turnover of any US company this year.

By the time 2005 is up, it is thought that the world’s biggest five oil companies, that’s Shell, Exxon Mobil, BP Chevron and Total will have made a combined profit of in excess of $100bn, and inevitably, calls for a windfall tax are growing

But, in an imaginative defence, Exxon Mobile said: “Our earnings are indeed at a record high, driven largely by the price of the commodities we sell. But if you compare profits per dollar of revenue across a wide range of U.S. companies — a true “apples to apples” evaluation — you see that oil earnings are not out of step with other major industries. “Apparently oil and gas industry earnings averaged 7.7 cents per dollar of revenue during the second quarter compared with the overall U.S. industry average of 7.9 cents. Exxon Mobil earned 8.6 cents.

“But,” said the company, “While earnings rise and fall with oil prices, our investments do not. $15 billion was invested in a year when the oil price averaged just below $40 and earnings were high. But we also invested $15 billion in 1998, when oil dipped to $10 a barrel and annual earnings — at $8 billion — were far lower. In fact, averaged over the last ten years,our annual capital investment for the future of the company exceed our earnings. Ours is a capital-intensive business where investments can take many years to develop. A thoughtful, long-term approach to investment — regardless of the volatility in prices and earnings — ensures the apple tree continues to bear fruit in the best and worst of times.”

October 31, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

French president, Jacques Chirac, decided the best form of defence is attack last week, as he came out firing on all cylinders, determined to save the EU’s unpopular Common Agriculture Policy, and attempted to turn the tables on the US and UK.

In a recent interview with Figaro he said that the US and other large countries were responsible for “impoverishing’” the world’s poorest countries by forcing them to buy U.S. food surpluses. Then on Thursday he said: “I would remind you that 85% of all farm goods exported from Africa come to the E.U.” And of course, whenever the UK talks about reducing farm subsidies, Mr Chirac immediately responds by talking about the UK’s 5.2 billion- euro annual rebate, won by Margaret Thatcher in 1984.

Mr Chirac and his fellow countrymen have good reasons to oppose further reform to CAP. France, does after all account for around a quarter of all EU agriculture production, and appropriately, therefore, gets around 25% of all proceeds from the scheme, while agriculture and related business made up 4.5% of French GDP in 2002 and was worth $34bn in exports.

The IMF and World Bank are not impressed, however. In a joint statement put out over the weekend, they said: “The sector remains riddled with trade distortions that penalize consumers everywhere and the many poor in developing countries who earn their living from it. Comprehensive and sharp reduction of tariffs in the largest countries will deliver the greatest development gains.”

Meanwhile, EU trade commissioner, Peter Mandelson, is trapped between a rock and a hard place. The Americans, the developing world, the IMF and World Bank want him to cut tariffs, and as a free trader by philosophy, Mandy wants to comply. But if he gives an inch, the EU agriculture block will bay for his blood, and will demand running him down with a combine harvester at the very least.

This weekend, Tony Blair’s friend offered to cut EU tariffs to farm goods by an average of 47%. “It’s a bold move,” he told the Today program, but US Trade Representative Rob Portman said: “From our early analysis, we are disappointed.” Meanwhile, Jacques Chirac continues to threaten to veto any further concessions, and wants clarification that Mr Mandelson hasn’t exceeded his authority.

While you can understand French resistance to further reforms of CAP, it nevertheless seems like an anachronism. The average EU cow is after all subsidised to the tune of $2.20 a day, - there are no less than 1.2bn people across this planet who earn less than that. And as long as the EU drags its heels over moving with the times and insists on maintaining the 20th century status quo, no matter the cost to its own citizens and no matter the cost to the third world, then the EU itself will inevitably be relagated to second division status.

The new world which is emerging is one in which competition from the likes of China and India will become ever fiercer. And just as China embraces the world, does the EU really want to retreat behind it own wall? - throwing money at business and industry that can’t compete, instead of throwing its resource into moving up the value chain, creating more wealth for all.

October 30, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The UK could be making a return to the G8 fast lane next year, with the latest report from BDO Stoy Hayward suggesting that the economy should grow at the annual rate of 3% by the second quarter of next year.

It’s the service sector that is leading the UK into this apparent recovery , with the BDO optimism index for services seeing a sharp rise. It was all due to the August interest rate reduction, solid gains in stock markets, and relief at no further terrorist incidents. The positive sentiments from our services helped lift the BDO optimism index, which relates to growth two quarters ahead, to 101.2 from 100.4 in July. And this rise came despite a slight fall in the optimism index for the manufacturing index.

But while we should cheer the latest report from BDO, it is perhaps worth treating the findings with a degree of healthy cynicism. After all the BDO optimism index was even higher this time last year, but in fact the economy subsequently slowed - suggesting the report’s conclusions were not as portentous as first thought.

And while the BDO report makes pleasant reading when looking at Q2, the first quarter of next year is not so promising. The BDO output index, which relates to changes one quarter ahead slipped from 99.6 in July to 99.3 in October 2005, implying annualised economic growth of around 2.2 per cent in the first quarter of 2006.

But when it comes to the rate of interest, the tealeaves are even less promising. The BDO inflation index increased from 101.7 in July to 104.8 in October, implying that the Consumer Price Index (CPI) will continue rising at a rate close to the current rate of 2.5 per cent, leaving no room for a rate cut.

The National Institute of Economic and Social Research also predicted a rate of interest staying on hold last week. The NIESR report said that despite the UK economy slowing to enjoy growth of just 1.7% this year, and expected to rise to a below par 2.3% next, and despite the rate of growth in consumer spending this year and next expected to be half the level seen in 2004, consumer prices will rise by 2.6 per cent in the year to the final quarter of 2006. And the economic think thank reckons there’s a 60% chance of inflation being above target with unchanged interest rates.

Capital Economics appears to be out on a limb. It’s the only high profile economics forecasting group still expecting further falls in the official cost of borrowing.

Perhaps more worryingly, the NIESR predicts the UK economic trend rate of growth in the period to 2013 to be 2.4 per cent a year, reflecting lower growth in labour input. If they are right, then the government will have more problems than ever balancing the fiscal books, and it will become more likely that taxes will rise, further dampening growth.

Finally, to offer complete balance to BDO’s optimistic survey of the UK’s prospects, the CBI says our smaller manufacturers are in recession, although actually, there was a slight improvement on the CBI survey from July, with the index rising from -27 to -24.

Hugh Morgan-Williams, chairman of the CBI’s SME Council, said: “Small and medium-sized manufacturers are a good barometer of future economic progress. They are the first to feel the effects of an ill wind and the last to recover.” He added: “As the consumer spending slowdown filters into other areas of the economy, SME manufacturers have now experienced three consecutive quarters of falling output and are technically in recession.”

We do wonder whether the fundamental problem inflicting the UK is caused by successful economic management. We are enjoying our longest run of uninterrupted economic growth ever, the damaging stop go cycles of yester year seem to have been banished to the history books. But maybe business needs the occasional cull, the occasional sifting of wheat from chaff, which creates lean efficient business, able to take on the world.

October 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The latest figures on mortgage repossessions make grim reading- but while they are bad- they are not that bad- and we are nowhere near the levels seen in the early ’90s.

According to the Department of Constitutional Affairs, 29,991 mortgage repossessions were entered in the third quarter of this year. That’s 55% up on the same period last year, and the highest level since the third quarter of 1993.

Of the repossessions entered, 10,340 were suspended, taking the total number of court orders to 19,687, the highest level since the first quarter of 1996.

If we widen the net and look at arrears, then the picture is still unpleasant. And the problem area seems to be unsecured debt arrears. Despite this prolonged period of economic growth that the UK has been enjoying, unsecured debt arrears has been rising steadily. Capital Economics reckons that, as a result, bankruptcies will double by 2008, surpassing even the level seen in the early ’90s. And both Capital Economics, and the Bank of England, believe that changes in bankruptcy laws will only have had a small impact on these figures.

Commentators often forget that it takes time for the effect of changes to ripple out across the economy. The interest rate hikes of last year and 2003 are still only just beginning to affect arears.

But, while all this is bad, when we compare the figures with the early ’90s, then all of a sudden, things seem quite mild. Sure mortgage arrears have recently taken a turn for the worse, but then again, until last year had been steadily falling for 12 years, and right now the percentage of mortgage arrears as a proportion of all mortgages is only 25% of the level seen in 1992.

October 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Last week BSkyB thought it served an ace. First it announced a £1bn war chest for funding its move into telephony, to be partially spent on local loop unbundling - effectively removing BT’s infrastructure from its telecom offering. Then it announced its purchase of Easynet.

But yesterday, BT returned the serve, with a corking half volley into the far corner of BSkyB’s court.

BT has teamed up with Royal Philips Electronics to offer a next generation TV service in the latter half of next year.

The Service, which will run in conjunction with Freeview, will offer 30 channels of TV from the Freeview box, a seven day video catch up, with TV programmes shown over the previous seven days downloadable from the Internet, and what BT describes as an “extensive” video on demand library, again available from the net.

Customers will need the BT 2 megabit broadband service to enjoy the service.

The Set Top Box which will offer these services is to be supplied by Philips, and will include a personal video recorder (PVR) capable of storing up to 80 hours of programming and be capable of delivering High Definition content.

The BT service will not include any monthly subscription charges- instead there will be an element of pay per view.

Ian Livingston, chief executive BT Retail, said “Our services will be a world first and will place power in the hands of the viewer. No longer will BT customers be reliant on TV schedules. From next year, they will be able to watch what they like when they like. This is all about giving our customers choice, convenience and control.

“We see next generation TV as a vital element of our vision for home entertainment. In an increasingly converged world, BT customers will be able to benefit from the combination of television, communications and the internet. For example, football fans across the country will be able to chat using video telephony while watching a match. Our catch-up TV offering will also allow people to watch programmes they may have missed but wanted to see.”

The BT service will employ the Microsoft TV IPTV Edition software platform.

October 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Things are just not going right at Boots. It might have taken on ex Asda man, Richard Baker, in an attempt to reverse its fall, but, in the UK especially, things seem to just keep going downwards.

Profits from the last six months were down 9.6% to £163mn, while like for like sales were down 1.3%.

Mr Baker said “Like-for-like sales in the first half are below the rate planned for the full year and the market is expected to remain similarly tough through the rest of the year.”

Next year the company is merging with Alliance Unichem. With a greater presence in the convenience shopping market- a haven relatively safe from the likes of Tesco, Alliance UniChem has been growing while Boots has been stagnating.

October 27, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The Office Of Fair Trading is worried about competition in sauce. Last summer Heinz announced plans to buy HP foods from Danon. The purchase would mean products such as Heinz tomato sauce, Lea & Perrins, Amoy and Daddies would all be under the one roof. And yesterday, the competition authorities were asked to take a look.

Vincent Smith, head of competition enforcement at the OFT, said: “As a result of the merger, retail customers and consumers could suffer from less competition resulting in higher prices for products such as HP brown sauce, tomato ketchup and baked beans.”

It’s thought the Heinz purchase of HP will result in job losses. HP Foods employs around 450 workers at factories, in Worcester, Aston Cross and Birmingham. Heinz employs 5,000 staff in Wigan, Leamington Spa and Estwick.

But Heinz appeared unconcerned by the OFT referral. And Jane Miller, head of Heinz UK & Ireland, said: “It is not unusual for acquisitions of this magnitude to be referred to the Competition Commission to ensure that any potential concerns are addressed.”

“Heinz is confident that this acquisition will meet the criteria for final clearance. This deal has already received approval from the merger authorities in Ireland and Germany.”

October 26, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

By 2010, the Chinese economy is likely to be twice its size at the turn of the millennium. The Chinese government says that it needs to grow by an average of just 5.6% per year for the rest of this decade for this to happen and yet expects growth of at least 7.5%. In the first half of this decade, China grew by an average of 8.8% per year.