November 18, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Rick Wagoner, the boss at GM, has robustly denied talk that the company which was once the most powerful car manufacturer in the world is close to Chapter 11.

Mr Wagoner, who is both GM Chairman and Chief executive said in a letter to employees, “There is absolutely no plan, strategy or intention for GM to file for bankruptcy.” But he added, in a thinly disguised warning to the unions, “The large losses at GM North America are unsustainable, for sure, and require a comprehensive strategy to address them… a strategy that must be implemented promptly and effectively, to get our US business profitable again.”

Recently the Bank of America said “the probability is that the company will file for Chapter 11 at 40%.”

Many fear that strike action at auto-parts maker Delphi, which was once owned by GM could spell the death sentence for its former parent. Delphi itself is already in Chapter 11, but management are trying get unions to agree to drastic and unpopular jobs cuts and lower wages. Delphi is a crucial supplier to GM, and it is thought that failure to reach an agreement could prove to be too much of a burden for the giant car manufacturer.

For all that, the company does have a $19b cash pile, it’s just that this is diminishing rapidly.

November 18, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Lord Black of Crossharbour, once the third most powerful press baron in Britain, who rubbed shoulders with some of the most powerful politicians in the world - has been indicted, and could face up to 40 years in prison.

As long term readers of this bulletin will know, Lord Black was forced to relinquish control of Hollinger International, who in turn sold the Daily Telegraph. This was after allegations that he and his colleagues had wrongly pocketed money as non-compete fees from the sale of Canadian newspapers, when in fact the money should have gone into the coffers at Hollinger International, the company which owned the Daily and Sunday Telegraph, Chicago Sun-Times and Jerusulam Post.

But since then the list of allegations has grown longer. He was also accused for example of using a company-leased Gulfstream IV jet for personal vacations, including a week holiday with his family at Bora Bora in 2001. Also included in the list of company funded extravagances are such expenses as a $42,000 contribution from Hollinger for a surprise birthday party for Lord Black’s wife at New York’s La Grenouille restaurant in 2000 at which 80 guests enjoyed a $212 a head meal.

Lord Black had a taste for mixing with the powerful and Hollinger, or so it is alleged, foot the bill. For example, $28,840 was forked out on the cost of three dinners with former US Secretary of State Lord Kissinger and his wife.

Lord Black’s charm was applied to other famous politicians. He was one of Margaret Thatcher’s favourites. At their first meeting he told her that he considered her the most important political figure in British History since Oliver Cromwell. The flattered Mrs T eventually made him a life peer.

But while Lord Black, who has a deep knowledge of history, charmed the powerful, he was less tolerant of those who were opposed to his spending ways. When SEC chairman Richard Breeden led the investigation into the charges aimed at Lord Black and colleagues, the naturalised Brit was said to snarl at him in board meetings and threaten to sue him for every cent the hapless Breeden had.

Hollinger boasted a heavy weight board, both Lord Kissinger and former pentagon advisor Richard Perle for example, but not even they were able to curb Black’s alleged excesses.

It is thought that if Lord Black is found guilty, even if he escapes a prison sentence, he could lose his peerage.

Lord Black’s former right hand man, David Radler, has already pleaded guilty and is thought to be providing invaluable information to US authorities. In return, Mr Radler will escape with just 29 months in prison and pay a $250,000 fine.

Lord Black’s lawyer said “Conrad Black asserts his innocence without qualification with respect to each and every one of the charges set forth in the indictment…It will be shown that he has, at all times, acted within the law. He is confident that if given a full and fair opportunity to defend himself, he will be found innocent.”

November 17, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

The Bank of England has gone all bullish. It’s saying that over the next two years inflation will stay under control and has joined a growing chorus of voices predicting an improvement in the UK economy next year. It’s governor, Mervyn King said this improved outlook “is reflecting a recovery of domestic demand and foreign trade.” Mr King said that inflation will “fall back to below the 2% target over the next year before gradually rising back to and then a little above the target two years and more ahead.” Analysts are interpreting this statement as a hint interest rates are likely to stay on hold for some time.

As for the consumer slowdown, Mr King says that higher taxes are the main cause. The Bank of England has, on the whole, not been concerned by the level of borrowing, saying it’s affordable. This contrasts with the views held by others, such as Capital Economics, who believe our indebted consumers are feeling the pinch - and that rates have to fall.

November 17, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

How times have changed - time was when the music companies saw the Internet as the big bad wolf, and a medium that could offer nothing but piracy- now its an important part of sales and when music giants announce their profits- almost as much attention is paid to Apple’s role, as to the actual results themselves.

Take EMI. Profits are up. With albums from Coldplay and Gorillaz selling 7.5m and 3m copies respectively, all of a sudden the EMI balance sheet is looking better. In fact EMI Group revenues increased to £924.6m, that’s up 5.8%, while group profit from operations (EBITA) increased by 12.6% to £86.7m with operating margin improving from 8.8% to 9.4% in the last six month period.

With the next period set to benefit from new releases from Robbie Williams and up and coming new artist - Kate Bush, whose next album is set to hit heights which are far from wuthering, the outlook is looking good.

In fact, EMI is now talking about taking on the senior role, if and when the company merges with Warner Music -as has been touted for some time.

But despite all this good news, and sweet music form EMI, press attention turned to Apple. EMI Group boss Alain Levy said that the company behind the iPod was considering introducing two price points for iTunes. At the moment it’s simple, all tracks cost 79p. But now there’s talk of a higher price level for established stars, and a cheaper rate for up and coming artists.

EMI benefited from 50 million downloads during the period, with on line sales hitting £36m, that’s two and half times better than last time. EMI now controls 13% of the global music publishing business, up 12.5% from six months ago.

November 17, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

After weeks of rumour, counter rumour, and pokerfaced British executives saying they weren’t impressed - BPB has finally caved in to St Gobain.

The 440 year old French company has upped its bid to £3.9b, or 775p a share, and while BPB management had been saying the company was worth much more than that, the fact is shares were trading in the region 510p before the world’s largest building materials company first expressed interest in purchasing the British plaster board business.

The first bid was for 720p, hedge fund investors immediately saw an opportunity for a quick buck, and dived in, typically paying around 730p a share - and buying up around 20% of the company between them. So for them, 775p makes a nice little profit - in just a few weeks too - the whole saga only kicked off in August.

BPB has shown just how important focus is. When it comes to plasterboard manufacturing it knows its stuff. And by concentrating on what it knows it has managed to increase profits by over 70% since 2003. It has 20% of the global market, and according to its boss, the potential for further expansion, especially into developing markets - a lot more homes in China and India are beginning to benefit from plaster - is vast.

On the other hand, shareholders looking at the 775p offer and contrasting it with the price they paid, are more than likely to find the offer irresistible.

Despite, stonewalling St Gobain when they made their previous offer - the sensitive French predators suggested BPB management were being quite rude - and then going to some length to explain why BPB should remain independent, its understood the management have relented, and BPB’s acceptance of the offer is expected to be confirmed today.

November 17, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

If you take a look at the headlines this morning it is difficult to believe the analysts are talking about the same company.

The Telegraph said “well done Sainsbury”, Reuters, “Sainsbury on road to recovery,” yet The Guardian talked about “flat profits disappointing” the city while the Scotsman said “Sainsbury comes up short as profits slide.”

No prizes for guessing which side of the divide the management at the supermarket have taken. They said, “Sainsbury’s is great again.”

There’s no doubt, that under the new management, headed by Justin King, the slide at Sainsbury’s has been reversed - but whether this is permanent or just a blip only time will tell.

Like for like sales have been up for three quarters in a row now, and its market share is climbing. According to TNS, its share for the 12 weeks to 8 November climbed to 15.7%, from 15.5% a year ago, and 15.3% in the 12 weeks to September 2004.

Okay, that’s not a massive turnaround - but it is a reversal. The store has improved its stock control, - in the past customers used to complain about empty shelves, that’s changed, and the onus is on fresh food - a message supported by the cheeky chef himself in the company’s seemingly ubiquitous ads.

On the other hand, underlying profit before tax came in at just £118m, from £117m this time last year, short of market expectations- and not exactly heady growth. Some analysts have been focusing on the Sainsbury pe ratio, saying that the current share price gives the company a forward pe of 29.4, compared to just 15.7 for Tesco.

The average price of goods sold in the supermarket is now at the same level as 1997, price deflation like that is hardly conducive to profit growth - research still indicates Sainsbury’s is more expensive then its big three rivals, and yet, somehow, Tesco manages to grow its profits.

Sometimes, it seems to us, that you can gauge how well a store is doing just by shopping there. Frankly the writing was on the wall for Sainsbury’s for years- Tesco’s rise could have been predicted by shoppers, and yes, in our opinion, there is a hint, just a hint- that Sainsbury’s is getting better. But great, no. Maybe its boss, unlike a previous King, has stopped the tide.

Meanwhile, there’s also a sign that the decline at Morrison has stopped. The integration of Safeway into Ken Morrison’s empire has been beset with problems- market share has dwindled, profits have been re-stated- downwards- and shares have not looked good. But the latest TNS survey shows that market share at last appears to be climbing.

November 16, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

In the US, there’s talk that house prices may have peaked. The US property market cycle is thought be lagging nine months or so behind the UK, and in the latest quarter average price was up 3.8% from 10.4% in the previous quarter. Some economists believe that even a soft landing in the market - in which prices just stay static - could have a serious impact on the US economy knocking a sizeable slice off growth.

November 16, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Rupert Murdoch has described the New Corp share price as ‘rotten’ and has blamed an’‘investment strike’ against media companies as they fret over the impact of the net. Mr Murdoch said “There’s some disconnect between our company’s growth and the share price.”

Earlier this year, Bill Gate’s occasional lunchtime companion - (its is said the two men don’t trust each other and their lunches were punctuated by stony silences) said that News Corp had ignored the net for too long. The company has since devised a strategy.

A new world order is emerging - much of the underlying changes occurring while News Corp’s head were buried in the sand. Some say the company has left it too late.

November 16, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

It was good news all round on the inflation front yesterday, as the latest official statistics indicated a fall in CPI inflation last month - the first monthly fall in over a year - while oil also fell again to a level which is now 20% below the August peak.

Capital Economics celebrated the news with the prediction that the rate of interest would see several reductions over the coming months - finally settling at 3.5% - a full percentage point below the current level.

For all the good news though, some of the factors behind the inflation drop were one offs. The Office of National Statistics said that “Plentiful supplies of some fresh vegetables caused prices to fall this year, generating another large downward contribution from food and non alcoholic beverages… While another large downward contribution came from… financial services with charges relating to bank overdrafts increasing by less than a year ago.”

But it was oil which really helped. After hitting $70 plus in late August, the black stuff fell to $56.95 last night, the lowest price we have recorded since June.

Capital Economics proclaimed that “the figures send a strong signal that inflation pressures in the UK economy are now easing in response to the weakness of activity over the last year. We still expect interest rates to fall in February before heading further towards their 2003 low of 3.5% later in the year.”

Not all agree, however. With gold running high, money supply having grown steadily over the last decade or more - some argue that inflation will be making a return. And just as high oil as a threat to inflation can be dismissed as a one off, so too can the factors which have been behind low prices, as cheap goods from China and India will inevitably rise in price sooner or later.

November 16, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Revenue at Vodafone was up 9%, while customer numbers increased 10 million in the last six months, but the company saw the biggest slide in its share price since 1998, as traders chose to focus on the glass is half empty side of the business.

It could have so easily been a different story. One trader said that the performance would have actually been quite exceptional if it wasn’t for…

In fact there’s more than one problem at Vodafone. For one thing profits were down - thanks to a £515m charge relating to the sale of its Swedish business.

I’ts boss, Arun Sarin, kept using words like challenging and competitive, and tough. - And the ‘but’ word kept cropping up. For example, it was a good performance ‘but.’

But (we use that word too - ed) what really did it for the company was Japan. Just as NTT DoCoMo has been unable to translate its winning formulae in its home territory to overseas success - the world’s largest phone network provider is struggling to be anything other than an also ran in the telecoms market of the rising sun.

Actually it’s number 3, but way behind the market leaders, and it’s costing big bucks. Some thought the company would give up - but no - it’s throwing cash at the challenge, subsidising phones - running expensive promotions - and some say, throwing good money after bad.

But while the markets had cause for concern, it does seem to us, that Japan, if it can be cracked, offers rich pickings. If Vodafone can keep its nerve and pull this one off then the Far East could be its oyster. Then again, but….