December 7, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

ITV, fresh from agreeing to supply content for the ‘3′ mobile phone service (see 24 November news item “I’m a commuter get me out of here”) has bought out high profile web site Friends Re-united for £120mn

Founders, husband and wife team Steve and Julie Pankhurst, who initially ran the company from their spare bedroom, will net £30mn from the deal.

Friends Re-United is the eighth most popular web site in the UK, with only search and access portals such as Google, MSN, Yahoo!, Ebay, and BBC Online ranking higher.

For ITV, the move represents an opportunity to build their online presence. A statement said, “With UK broadband penetration set to reach 50% of homes by 2010 and UK internet advertising spend predicted to rise above £1 billion in 2006, the acquisition enables ITV to strengthen significantly its current online presence, adding Friends Reunited to ITV.com and ITV Local - a broadband TV trial in Brighton and Hastings.

“The acquisition is part of a strategy to build content based businesses which create and monetise direct consumer revenue for ITV. ITV’s Consumer team has already successfully launched ITV Mobile ( www.itv.com/mobile ) and ITV Local (www.itvlocal.tv ) earlier this year, and will launch a new Interactive TV service, ITV Play, in the New Year.

The acquisition makes ITV’s family of sites the largest UK-owned commercial online business.”

ITV plans to develop new services and revenue streams by linking ITV.com, ITV Local and Friends Reunited in areas such as dating, recruitment and classifieds.

December 7, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

We were a little sad when we heard that Watestones had won the battle to control the Ottakar’s book chain. To us it felt like a triumph of ’short-termism’.

Ottakar’s has been one of the stars of the High Street in recent years. It was founded in 1987, and has grown to a retail phenomenon with 137 stores. Although the share prices had suffered a little before the recent talk of a buy out engendered a surge, throughout most of this decade shares have gone up, whilst all around there were falls.

Then earlier this year it emerged that founder and Managing Director James Heneage, Chairman and Ludlow Tory MP, Philip Dunne, and the new kid on the block, Finance Director since January, Michael Hitchcock, had announced plans to take the company private with a Management Buy Out. Good for them, we thought, Mr Heneage had done sterling work up to now.

But then its arch rival, Waterstones, with their 198 stores outbid the trio, and Ottakar’s fate as an independent company seemed sealed. We said at the time, that while shareholders might be happy with the offer, we felt the book shoppers would be poorer as a result. We were also a little disappointed, that the management team who had done so well, often at the expense of the bigger, better backed, and more established rival, were unable to find the backing to compete.

For us this was an example of market failure, insufficient weight had been placed on the remarkable success story and proven management strength, and instead short terms gains were put first.

Customers and authors were not to keen on the deal either. The Telegraph quoted one author, the Biographer Michael Holroyd as saying, “Waterstone’s chooses about 5,000 books a year and promotes them so that they sell tremendously at the expense of others. If a book is not taken up within a month, it is replaced. Ottakar’s, on the other hand, gives books more time to take off.”

Apparently, the Competition Commission received 350 objections, and as a result is to investigate the planned merger. The OFT’s chief executive said, “Our economic analysis shows that Ottakar’s competes harder on non-price factors when a Waterstones is nearby.”

A Waterstones spokesman said, “It is a complete myth that we are highly centralised. Only two per cent of our stock is bought centrally and the vast majority is bought by the local managers.”

December 7, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Wander around one of the main shopping centres - it’s hard to believe there’s a crisis on the High Street at the moment, maybe that’s because it’s over.

This week two reports have been released showing that the beleaguered British Consumer has blown the cobwebs of his wallet, has managed to force open her purse, and is spending again. The positive news from the High Street comes on top of the recent reports showing renewed vigour in the housing market.

Earlier this week, the British Retail Consortium issued figures showing that like for like retail sales in the year to November 05 were up 0.8%, the first monthly rise since March.

Then yesterday, the Nationwide Consumer Confidence index was published, and it showed the biggest monthly rise since the index was instigated in May last year.

What with the Halifax reporting another 1.2% rise in house prices in November, maybe there’s room for optimism again - at last.

The cold weather seemed to be the main driver on the High Street, with the clothing sub sectors showing big rises. Footwear too was up, after several months of decline.

As for the Nationwide consumer confidence index - in November, it rose by 9 points: the largest monthly change recorded. This followed three successive monthly falls which saw the index fall to its lowest ever level in October. The recovery in confidence brings it close to the average level, similar to the levels seen in the summer.

Stuart Bernau, Nationwide’s executive director, said “It appears that recent negative sentiment, caused by recent higher petrol prices, fears over house prices and other factors, has dissipated. More upbeat sentiment may stem from more positive news on a number of fronts and may also reflect greater optimism in the run up to Christmas. In addition to feeling more positive about the present, there has been an upsurge in confidence about the future indicating that consumers feel that better times lie ahead for jobs, the economy and their incomes.”

The Nationwide has also found that the soft landing theory on house prices is gaining wider acceptance amongst consumers. At the beginning of this year 19% believed house prices would fall, now just 9% have this pessimistic expectation.

But, if you are in the business of supplying consumers, don’t open the champagne yet. There are quite a few buts.

The BRC said, “Shoppers remain very value-conscious and are often willing to wait for discounts and bargains. The underlying picture on big-ticket items remains difficult, with sales driven heavily by promotions.”

The biggest worry though, must relate to the findings of the CBI index on the High Street. Released last week, this index fell dramatically in November and at the time John Longworth, Executive Director of Asda and Chairman of the CBI’s DTS Panel said, “Any hopes retailers had of an early Christmas present have been dashed. Consumers have been extremely reluctant to spend money, and shops will be crossing their fingers that the predicted cold spell and the rapid approach of Christmas drives people through their doors and gets the tills ringing.

Prices are being cut and this, coupled with the escalation in fuel prices, will see margins put under serious pressure. The consumer spending slowdown is impacting on the economy as a whole and is of real concern to businesses across the board.”

It’s a funny thing, but we have noticed that the CBI figures are consistently more pessimistic than data from other sources. It’s not just the High Street, but the same applies to manufacturing. While in recent months the ONS and CIPS have been reporting renewed strength in manufacturing, the CBI has the sector down more than ever.

Perhaps it’s a good job the CBI doesn’t report on house prices, if they did maybe they would be telling us the sector has already crashed.

December 6, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

We have said before that many of the chancellor’s problems are actually no more than his own spin coming back to haunt him. The Golden Rule is Gordon’s baby, he is the one who said we must measure his credibility against this. The raft of problems Gordon has encountered in protecting this rule, forcing him to apparently change the goal posts over and over again could perhaps have been avoided, if, instead of setting this rule, Gordon just said, “our public finances must be better than all other G7 economies”.

Because, if you cut thought the hype, the UK would appear to have stronger public finances than any of other major economic rival.

And while the Golden rule has nice ring to it, perhaps the sustainable investment rule is the one we should attach the most credence to, because this rule applies to the total level of debt.

As Gordon said in his speech yesterday “Net debt levels will be 36.5 (that’s percent of GDP) this year and in future years 37.4, 37.9, then 38.2, 38.2, 38.2, at every point lower than today’s 44 in France, 47 per cent in the USA, 61 per cent in Germany, 81 in Japan”

December 6, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Gordon Brown hadn’t been in Downing Street for long, when he followed up his first brave step of giving independence to the Bank of England, with a piece of magic. He found a massive multi billion windfall just by removing tax credits from dividend payments on pension investments. At the time, the removal of the tax credit barely created a flicker, and it was as if the chancellor had somehow done the impossible, raised money without hurting anyone. But with the benefit of hindsight, and with the fears over the impending pension crisis growing, it would appear that this was in fact the first example of a stealth tax. We have slowly become used to Gordon Brown’s methods of taxing us without it being immediately obvious that was what he is doing.

Yesterday he may well have done it again. This time it was no stealth tax. The tax he introduced was in the full glare of cameras, it was a kind of Robin Hood move, clobbering those who have been taking money from the poor troubled consumer. Of course many will love the move, but in the long run… it could be trouble.

Gordon hit the oil companies. They already had to pay an additional 10% corporation tax more than anyone else, and now that has been upped by another 10%, effectually taking their corporation tax to 50%.

And as the oil companies have been held out to blame by many pressure groups as the bogey men of the UK economy, there have not been many tears. After all, as Gordon said, “Our economy has had to withstand an oil price rise from around $25 to a current price of around $55, which is also close to the level of almost all future projections…Returns in the North Sea are now nearly 40% on capital, compared with ordinary returns on capital of 13%.” In other words, the oil companies can afford it.

But there’s a problem. The UK is running out of oil, the decline had been inexorable except for one glimmer of hope. As the price of oil goes up, suddenly it has become economically viable to explore areas that were previously thought too expensive to exploit. Suddenly, oil fields that might have been closed down are staying open.

Mr Brown said that the tax will not apply to oil development in sensitive areas, but that appeared to cut no ice with his critics.

The UK Offshore Operators Association’s (UKOOA), Chief Executive Malcolm Webb said, “At a single stroke, the Treasury has rewritten the industry’s future. It will severely undermine business confidence. This has been done not once but twice in the space of just three years and we fear that this time the North Sea will not be as resilient.” He added, “It is almost beyond comprehension that the government has failed to grasp the vulnerability of the industry’s future in the UK. It will deter investment in new fields and make older fields less attractive for increased recovery.”

A BP spokesman said, “any extra tax that we pay is money that is no longer available for investment in North Sea oil and gas fields.”

In fairness to the chancellor maybe we need to give this more time. Relief for ventures into sensitive areas may do the trick. It’s just that somehow we doubt it.

North Sea oil maybe lucrative now, but the future is not rosy. By introducing this extra tax, Gordon may well have sacrificed the UK’s future economic strength, just so that he can protect his own credibility and see his precious golden rule intact

December 6, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

It came as no surprise to learn that Gordon halved his projections for economic growth for the UK economy. It also came as no surprise that he asked us to focus on the 13 years of successive growth, and on how the UK performed better than other main economies in the EU over this time. Mr Brown said, “The first Government of any party to achieve 8 years of uninterrupted growth since 1805. For the fifth successive year running, British growth is higher than France, higher than Germany, higher than Italy, higher than the Euro area and higher than the European Union. ”

Yesterday, Gordon blamed any slow down in the UK economy on problems beyond his control, such as the high price of oil. Yet the treasury’s own figures which accompanied the report show that actually, with the cost of cars falling, the real cost of motoring as a percentage of income has been steadily falling.

December 6, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

When the chancellor announced changes to Self Invested Personal Pensions (SIPP) in his budget earlier this year, investment in property - including property you might live in, such as a second home, was included in the breaks. This immediately led a plethora of headlines, accountants got out their calculators and the entire world of second home ownership seemed to have been transformed. Many suggested a new mini boom in house prices could result. But yesterday, it all changed, a treasury spokesmen talked about the “unintended consequence of simplification”, and in one foul swoop Gordon has put an end to the idea of second homes as a part of a pension.

Fine wines, stamps, art, antiques and racehorses have been hit too and will not after all attract tax relief from next April as had been widely anticipated.

That’s not so say these investments are completely off the agenda. If included in a pension they might not offer immediate tax relief, but will be free of capital gains tax at the time of sale.

It will also be possible to invest in these areas, but as a part of, “genuinely diverse commercial vehicles.” Real Estate Investment Trusts for example, will still benefit from the original tax breaks.

Inconsistency is a bad thing. This u-turn by the government is undesirable in the sense that hopes have risen, and then were dashed. Accountants and IFAs have wasted their time and money and no doubt their clients’ time in preparing for a change that will never happen. But the idea of tax breaks for investing in products of such limited availability was always a bad idea. The resulting investments contribute nothing to the economy, but would have led to an increase in prices - maybe creating an unsustainable bubble.

December 5, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Last week the Halifax did it again. It revealed a big and unexpected jump in average house prices. According the bank, house prices leapt 1.2% in November.

While Halifax reckons the market will remain stable in the months ahead with modest rises, according to research from Propertyfinder.com January is likely to see a resurgent market. In its latest survey it found 60% of those questioned said they believed house prices will rise over the next 12 months, compared to just 54% a month ago.

Jim Buckle, the managing director, said: “We can predict with confidence that the housing market will wake up on New Year’s Day 2006 without the hangover it suffered on 1 January 2005. Househunter confidence is on the up and although we don’t expect prices to rise strongly, there is no doubt that people are no longer afraid to move.”

December 5, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

When Margaret Thatcher swung her handbag the UK press loved it. She said she wanted her money back, the Europeans caved in, and her kudos amongst the euro cynical electorate soared. Tampering with the UK rebate could amount to political suicide, and yet, while the rest of us enjoy our pre Christmas revelries, it would appear that this is exactly what Tony Blair will do at the next EU summit on the 15th and 16th of this month.

It’s not exactly an ideal way to celebrate the end of the UK’s six months presidency, but while the press will no doubt be in uproar, it may well be that actually its the right thing to do.

Firstly, back in the days when Mrs T was in the front line, the UK was known as the sick man of Europe. Industrial unrest was known as the British disease, and the EU funding of that time was clearly unfair. These days, however, the UK is one of Europe’s success stories and perhaps it’s time our contribution matched out economic wealth.

Its not that we think the current system is fair. The Common Agriculture Policy remains a terrible injustice, with the typical EU cow enjoying a greater subsidy than the income of the world’s poor.

But while the UK contributes, even after the rebate, a lot more than France, it seems the real victim is Germany, contributing more than double the amount the UK chips in.

But the tide is turning against CAP. There is a gradual realisation that the CAP must eventually go. We believe that the UK will ultimately will win this argument, but not without giving up some ground first.

The EU is expanding so that the UK has more natural allies, and as more and more countries take from the pot, CAP will become unsustainable. By giving some ground on the rebate, the UK will gain the initiative, and the next step must be for further compromise over the agricultural subsidies.

After all, agriculture may be a lot more important to the French economy than it is in Britain, but it still only accounts for 2.7% of French GDP. French consumers would benefit from an end to subsidies just as much as the Brits.

December 5, 2005 | posted by Michael Baxter in Uncategorized | comments (0) |

Gordon Brown could have egg on his face today, as he reveals his pre-budget report. More likely however, he will reveal statistics to show that he was right all along, and that any discrepancy between his projections for the UK economy and what actually happened, was down to factors beyond his control. He will probably imply that if any economists who criticised his projections in the past are proven right, then it’s no more than a fluke, and the slowdown could not possibly have been foreseen.

Earlier this year, when all around his critics were predicting doom and gloom, Mr Brown stuck to his guns, insisting that the UK would grow at 3 to 3.5% this year. But it now looks likely that 2005 will see Blightey grow at well under 2%, leaving, you would have thought, the chancellor embarrassed.

Somehow however, we doubt whether Mr Brown’s face will show any form of blush whatsoever. He will argue that the reason why he got the projections so wrong had nothing to do with wishful thinking, or even - heaven forbid, a desire to project a positive a picture at the time of a general election. Instead he will talk about the slow pace of economic recovery across the EU holding us back, about the unprecedented rises in the cost of oil caused by hurricanes, and the unexpected slow down in the housing market.

But while Gordon attempts to use figures to prove black equals white, bear in mind that with the exception of the hurricanes, all the other problems were predictable, and in any case, oil was above its current price before the storms started blowing.

No doubt the Tories will talk about the UK being one of the worse performers in both the EU and G7 this quarter, while Gordon will say, “yes but,” we have enjoyed a longer run of uninterrupted economic growth than any other major developed economy.

The Tory’s spokesmen George Osborne will talk about the tax burden being too high while Gordon will poke fun at him for being a supporter of flat taxation.

Beyond the tittle tattle of politicians and economists trying to prove Gordon was wrong, and him trying to make use of his ability with statistics to show he was right all along, it is thought the pre budget report might well be used to announce a windfall tax on oil company’s profits to fund a new raft of measures designed to help poorer families, but which will no doubt add more complexity too.

Meanwhile this morning, data from BDO Stoy Hayward revealed that 2006 is likely to see a pick up across the economy.

The BDO Business Trends report for November suggests that the second quarter of next year will see 2.7% growth. The BDO Optimism index fell slightly to 101.1 from 101.4 last month, but even so, at that level the UK is set to see a strong recovery in the spring.

But the BDO output index, which relates to growth one quarter ahead, suggested the UK will limp into 2006 with a mere 2.3% growth.

We have noticed something odd about the BDO projections. The Optimism index, which relates to growth two quarters ahead, has been performing better than the output index, which relates to one quarter ahead for over 15 months now. And on the whole the optimism index has consistently made quite bullish predictions while the output index has predicted the UK will be mired in first gear. Now to us, that doesn’t make sense. After all, if you superimpose the optimism index, from 3 months earlier over the output index for today, the two should be identical. Maybe it’s because human nature is such that when looking further into the future, our predictions tend to be more optimistic, and perhaps less realistic.