Week in Review, January 13

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A round up of some of the week’s most significant corporate events and news stories.

Supermarkets take the lead in battle of the UK high street

Results this week laid bare the uncertainty facing UK retailers. While supermarket chains notched up bumper food sales, revenue growth in clothing was sluggish or worse for some but by no means all on high street, writes Mark Vandevelde.

Falling consumer spending has led to a fiercely competitive trading season that has separated winners from losers on the high street © Getty

Wm Morrison, J Sainsbury and Tesco all reported year-on-year rises in grocery sales, especially in the week before Christmas. And although Tesco posted its best Christmas revenues for eight years, it missed analysts’ expectations. Meanwhile, shoppers shied away from splurging on clothing and general merchandise, with Sainsbury’s chief executive Mike Coupe saying: “Where people can defer their purchases, they do.” This was a trend evident elsewhere.

Mothercare on Monday lost more than a quarter of its market value after the children’s goods retailer warned of a sharp drop in profits following 7.2 per cent slide in revenues in the 12 weeks to December 30 year on year. It said stagnant wages and a November interest rate rise had prompted a “sudden shift” in customers’ willingness to spend.

Marks and Spencer

© Bloomberg

13 weeks to December 30

  • UK LFL sales: -1.4%
  • Food: -0.4%
  • Clothing & home: -2.8%

Declining sales at M&S’s food arm was a far worse result than at other large grocers. Steve Rowe, chief executive, said that unlike cheaper rivals, M&S had been unable to increase food prices in line with rising input costs. “I don’t think I could push my prices in the same direction,” he said.

Tesco

© Bloomberg

19 weeks to January 6

  • UK LFL sales: +2.3%
  • 6-week Christmas: +2%
  • Christmas food: +3.4%

Chief executive Dave Lewis said consumer sentiment had turned more nervous: “There is definitely some caution in the way customers are talking about the year ahead.” Customers choosing to spend on luxury food at the expense of gifts was one of the strongest trends Tesco noted.

John Lewis Partnership

© Anna Gordon/FT

6 weeks to December 30

  • John Lewis LFL: +3.1%
  • Waitrose LFL: +1.5%

The upmarket retailer posted its best ever Black Friday. But Sir Charlie Mayfield, chairman, warned: “The pressure on margin . . . has intensified because of our choice to maintain competitive prices . . . This will negatively affect full-year financial results as indicated previously.”

In contrast to the big grocers, Marks and Spencer revealed lower same-store sales at its high-end food business. Sales of clothing fell 2.8 per cent on a like-for-like basis, more than double the rate of decline seen in the previous quarter, as a warm October hit sales. “Consumers are behaving in a recessionary way,” said Steve Rowe, chief executive. “Their budget’s under pressure. Inflation in food, petrol — that eats straight into it.”

John Lewis, the upmarket retailer beloved of Britain’s middle classes, increased Christmas sales but warned this came at the expense of margins.

House of Fraser became the latest UK department store to report a difficult Christmas trading period with revenues, with even online sales in decline.

Suit seller Moss Bros became the third UK retailer to issue a post-Christmas profit warning but the same day, upmarket fashion brand Ted Baker and premium leisurewear retailer Superdry reported robust festive trading. Casualwear chains Fat Face and Joules also posted healthy festive sales.

As British consumers continued to shift their spend online, fashion retailer Boohoo upgraded its full-year forecasts for the second time in four months after doubling sales. Meanwhile discount chain B&M bucked the trend among bricks-and-mortar retailers as it posted sharp increase in revenues on the back of store openings.

Kodak shares on a roll after blockchain announcement

Traditional stocks felt the cryptocurrency mania last week, writes Chloe Cornish.

Eastman Kodak, the US photography company, said on Tuesday that it was launching a blockchain ledger and cryptocurrency for photographers, sending its shares rocketing from $3.10 to a high of $10.70.

© AP

Kodak’s market move followed a familiar pattern — company signals blockchain pivot, share price booms.

Following an announcement on Thursday that MoneyGram would be testing the XRP cryptocurrency for cross-border payments, shares in the US money transfer group rose nearly 12 per cent — a fillip for the company just days after the US government sank its plans to sell itself to China’s Ant Financial.

Messaging app Telegram also announced plans to join the cryptocurrency payments boom, by introducing a digital coin on its chat platform. The encrypted messaging service hopes to raise $500m by selling the tokens, which will be known as Grams.

But the week for bitcoin, the granddaddy of cryptocurrencies, was less favourable. Thursday’s news that the South Korean government was set to rein in virtual currency trading pushed down its price by as much as 14 per cent.

That move came days after the Chinese government signalled it would move to quash bitcoin mining — the energy-intensive process of recording transactions on the currency’s digital ledger, an activity concentrated in the country thanks to its cheap electricity.

India bans PwC audits after failure to spot $1.7bn fraud

India’s securities regulator this week banned PwC from auditing listed companies in the country for two years, after the accountancy firm failed to spot a $1.7bn fraud at the now defunct Satyam Computer Services, writes Simon Mundy.

© Reuters

In a 108-page report, the Securities and Exchange Board of India (Sebi) said Price Waterhouse — PwC’s Indian audit unit — had neglected to check “glaring anomalies” in the financial details reported by Satyam, whose downfall followed one of the worst financial scandals in Indian corporate history.

For about five years beginning in 2003, Sebi said, Satyam inflated its revenue by accounting for 7,561 fake invoices. The fraud persisted in part because Satyam’s auditor, PwC, “did not independently check the veracity of the monthly bank statements”.

It relied upon assurances from Satyam “without any further examination or inquiry into the matter and ignored the balance confirmations received directly from banks which were showing true balances”, the report said.

As well as the auditing suspension, Sebi ordered PwC to disgorge wrongful gains of about Rs130m ($2m).

PwC said “there has been no intentional wrongdoing by [PwC] firms in the unprecedented management perpetrated fraud at Satyam”, and that it had strengthened its processes since the scandal broke.

It added that it was “disappointed” and would seek a stay on the order before it became effective at the end of March, on the grounds that it was out of line with a prior High Court order.

Huawei suffers US setback as AT&T phones deal fails

China’s Huawei suffered another setback in the US, where it had planned to sell its Mate 10 series of handsets with the help of Wonder Woman and AT&T, writes Louise Lucas.

© Bloomberg

The superhero stayed but the US carrier walked out, opting — after two years of negotiations — not to sell Huawei’s phones. The Chinese manufacturer, which at one time sought to sell its handset division, is now the world’s third biggest smartphone maker.

Its phones are popular in China and parts of western Europe but have yet to conquer the US, where Huawei is viewed with mistrust and carriers are blocked from buying its infrastructure equipment.

That has stymied its strategy of selling bundled kits and handsets, key in the US, where 90 per cent of sales are made via carriers — and highlighting the importance of the AT&T deal.

Ben Stanton, an analyst at Canalys, described it as “a stunning blow”.

Huawei admitted that the US “presents unique challenges”. Richard Yu, who heads the company’s consumer arm, hit back. “We are serving over 70m people worldwide. We’ve proven our quality, we’ve proven our privacy and security protection,” he told technology news outlet The Verge.

Employee-owned Huawei has long been a lightning rod for concerns about Chinese snooping in the US, with US telecoms groups blocked from buying its infrastructure equipment.

Huawei, which sells kit to several big carriers in the UK and Europe — damaging sales at Ericsson and Nokia — denies the US claims

Murdoch looks to add 10 Sinclair stations to Fox

Rupert Murdoch’s 21st Century Fox is finalising its acquisition of about 10 US television stations from right-leaning media group Sinclair Broadcast Group, according to three people familiar with the sale, in one of the group’s first moves since deciding to sell its entertainment businesses to Walt Disney for $66bn, writes Ravi Mattu.

Rupert Murdoch is plotting a new course for Fox after its Disney deal © Getty

The deal is subject to Sinclair’s $3.9bn purchase of Tribune Media securing regulatory approval, which would make the right-leaning media group the largest owner of local television channels in the US with access to 72 per cent of all households.

Mr Murdoch is looking to reframe his company following the blockbuster Disney agreement. Fox is selling its international assets, leaving a group comprising the Fox broadcast network, Fox News Channel, sports cable network and a portfolio of US TV stations. The Sinclair deal would include channels include some key NFL markets, including Denver and Seattle.

Critics of the Sinclair-Tribune deal have argued that it would concentrate too much power in the hands of one company and lead to increasingly biased news coverage. “Sinclair forces its local stations to air pro-Trump propaganda,” said Free Press, a non-profit lobby group, which is formally challenging the transaction.

Rival companies have also raised concerns over Sinclair’s expanding footprint. Newsmax, a conservative-leaning media company, wrote in a submission to the Federal Communications Commission: “A free and diverse press, a bedrock principle of American democracy, will be crippled by this proposed merger.”

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