The Times - UK (2020-06-29)

the times | Monday June 29 2020 1GM 33

Business

The week ahead

tomorrow

The new boss of J Sainsbury can

expect a warm welcome on

Wednesday for his first quarterly

update since taking over from Mike

Coupe at the start of the month.

Simon Roberts, who was retail and

operations director, is likely to

report a decent rise in sales after an

8 per cent increase for the first

seven weeks of the quarter, which

started on March 8. Sainsbury’s,

which employs 172,000 people, is

still recovering from its failed

attempt to merge with Asda and has

600 supermarkets, 289 of them with

Argos outlets, 800 convenience

stores and 600 standalone Argos

stores.

Two key economic indicators

stand out as worthy of attention this

week, one at home and one from

America. Tomorrow the UK’s first-

quarter current account is

published, with Investec bank

forecasting a deficit of £19.3 billion

based on monthly figures for

January to March showing a

shortfall on goods and services of

£4.8 billion.

On Thursday the US monthly

non-farm payroll numbers, which

exclude seasonal agricultural

workers, will be published a day

earlier than normal so as not to

clash with the Independence Day

holiday. Last month was memorable

for catching everyone by surprise

when the figure came in with a huge

wave of 2.5 million new jobs. This

time Investec is estimating a more

modest rise of 1.5 million with the

unemployment rate falling to

12.2 per cent, from 13.3 per cent in

May.

Sainsbury’s Simon Roberts is likely

to report a decent rise in sales

Until the lockdown

and the travel

restrictions that came

with it, On the Beach

had been doing all the

right things. It enjoyed

a strong start to the

year, with holiday sales

for departures this

summer up 29 per cent

— but then it issued a

profit warning for the

half-year stage in

February and

subsequently flagged

an exceptional charge

of £35 million to

reverse revenues

received for holidays

that are likely to be

cancelled in the

second half.

Numis Securities

points out that the

travel company has

extended its revolving

credit facilities to

£75 million and raised

£67 million in new

equity. With increased

financial firepower, the

broker argues that On

The Beach will be able

to boost marketing

spending as the

holiday industry

recovers.

Interims: Cloudcoco,

Driver, On The Beach

Finals: Civitas Social

Housing, D4T4

Solutions, Solid State

thursday

wednesday

friday

Investors must be hoping that the

update from Topps Tiles points to

an improvement on its half-year

results last month. In the six

months to end of March —

so hardly touched by the

start of the lockdown

— group revenue was

down 3.7 per cent at

£106.2 million as the

tile and flooring

company unveiled

a loss of £4 million,

compared with a

profit of £5.2 million

previously, with weak

consumer spending on

home improvement a big

factor. The immediate concerns

are how its commercial business

supplying trade customers has fared

since restrictions were eased and

whether shopper visits to its stores

and customer spending are rising.

Looking to J Sainsbury, James

Grzinic, equity analyst at Jefferies,

said that he expected a

“reassuring Q1 update, as

stockpiling and run-

down-induced

volatility in the early

part of March and

April should have

given way to a more

consistent, elevated

level of food sales

growth in May and

June.” He also was

looking for “strong

progress in seasonal

products at Argos”.

Finals: Enteq Upstream

Trading updates: J Sainsbury, Topps

Tiles

Marks & Spencer usually hosts its

annual general meeting at Wembley

stadium. This year it will be a virtual

meeting instead. Archie Norman,

chairman, and Steve Rowe, chief

executive, will beam through

investors’ screens to tell them why

life for M&S will never be “the same

again”. The AGM is usually devoid

of significant rebellions but

investors have reason to grumble as

shares in M&S have halved since

the start of the year, dragging its

market value down to £2 billion

despite £10.1 billion in sales. As a

result, the retailer has capped share

awards for Mr Rowe and Eoin

Tonge, new finance boss, and

scrapped bonuses for directors.

AGM: Marks & Spencer

DS Smith is one of the less high

profile members of the FTSE 100,

with a market value of £4.5 billion.

But it operates in 37 countries

employing more than 31,000 people.

As well as owning pulp and paper

mills and cardboard factories, it is

Europe’s biggest recycler of fibre-

based packaging, which it uses and

resells. The annual results should

reflect the fact that its services were

classified as essential and it has

been busy in food and drink

packaging. If that is the case, then

investors will be keen to learn when

the dividend might be restored.

Interims: St Modwen Properties

Finals: DS Smith

Trading update: Associated British

Foods

[email protected]

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Vodafone is leaning towards floating its

multibillion-pound European towers

business in Frankfurt rather than

London, in a move that would further

tilt the company away from Britain.

The FTSE 100 group has separated

its European tower infrastructure oper-

ations and is preparing for a potential

initial public offering early next year.

Vodafone dates back to 1983 and its

UK business remains based in New-

bury and global headquarters in Pad-

dington, London. However, Vodafone’s

recent €18.4 billion acquisition of the

cable assets of Liberty Global in a num-

ber of European countries, including

Germany, has significantly expanded

Vodafone’s business in the country. The

Vodafone steers float away from City

new towers unit is to be headquartered

in Düsseldorf, Vodafone’s German

head office, and the IPO could value it

at between €10 billion and €20 billion

and raise more than €2 billion.

The UK is on track for its weakest

IPO market in the first half of the year

since 2009, according to Dealogic, the

data company.

Nick Read, Vodafone’s chief execu-

tive, said last month that it was consid-

ering exchanges in Frankfurt and

London for the IPO. It has invited ad-

visers to pitch for a role alongside Roth-

schild, and is leaning towards Frank-

furt, according to a Bloomberg report.

Vodafone moved to spin off its towers

business last year to cut its €42.2 billion

debt pile. It said it would create Europe’s

largest towers portfolio with potential

earnings of €900 million.

Vodafone’s shift towards Germany

has also raised questions as to the

future location of its global base.

Mr Read, 55, said last October that

Germany was the “heart of the com-

pany”, representing 40 per cent of free

cash flow, but that “London remains a

good place to have a global headquar-

ters”. He added: “Obviously, with Brexit

I hope that remains the case.”

Vodafone has previously reached

network-sharing agreements in a num-

ber of markets, including with Telefoni-

ca’s O 2 in Britain and in Italy with

Telecom Italia’s Inwit tower business,

laying the groundwork for Vodafone to

“monetise a substantial proportion” of

its towers infrastructure.

Vodafone declined to comment.

Alex Ralph

Returns may

come back to

bite fashion

retailers

Ashley Armstrong Retail Editor

Retailers are being warned to prepare

for a painful hangover from the online

shopping binge after extending their

returns policies during the lockdown.

In an effort to revive sales, many re-

tailers lengthened their returns dead-

lines from the usual 28 days, some up to

100 days. However, analysts and retail

bosses have said they face an avalanche

of unwanted goods after that period.

“Returns will undoubtedly increase

significantly,” Richard Hyman, an

independent retail expert, said. Mr

Hyman said this was simply because

there were lots of new online shoppers

who were less used to internet services,

such as sizing and measurements on

websites. As a result, the level of returns

could far outstrip the typical 30 per cent

returns rate for fashion retailers.

Online shopping accounted for a

third of all retail sales last month. While

shoppers were cautious about spending

as coronavirus spread in March, retail-

ers have reported a partial recovery

since then, fuelled by online growth.

“Extended returns policies might be

necessary to instil trust with shoppers

right now, but this isn’t a sustainable

solution,” Natalie Berg at NBK Retail, a

consultancy firm, said. “The longer a

customer sits on a product that is event-

ually returned, the harder it is for the

retailer to sell it on at full price.”

Retailers are already grappling with

about £15 billion of stock writedowns as

they struggle to clear spring ranges that

have been trapped in shut shops. Matt

Clark at AlixPartners said retailers

were so desperate for cash that “driving

sales in any way possible is the priority”.

He predicted that many high street

chains would try to offer shoppers ex-

changes or credit notes to try and hold

on to as much cash as possible.

He added that the cost of dealing with

returned goods was also sharply rising

in the post-Covid world as clothes have

to be quarantined and properly cleaned

after being returned from people’s

homes. “Unless it’s a high margin or

luxury item you will never make money

off a returned item — retailers are bet-

ter off letting a consumer keep it or

sending it straight to landfill,” Mr Clark

said.

A retail boss said that during the

crisis sales of athleisure had vastly

outstripped sales of occasion outfits,

adding that shoppers could be prepared

to live with a slightly too-big hoodie

than an ill-fitting £90 cocktail dress.

up for a fight

failed to progress beyond college-level

American football.

Tom said there was little prospect of

he and Phil repeating the mistakes of

Adidas. The German giant was founded

by two brothers who fell out, resulting

in one leaving the business to set up the

rival brand Puma.

“We’re very close — we debate things

vigorously. It might look like an argu-

ment to an outsider, but it’s our way of

coming to a conclusion and often we

end up saying, ‘If you feel that strongly

about it let’s do that but then you had

better be right’,” he says.

Where the brothers say they have ad-

vantage over their long-established ri-

vals is their relative youth. As digital na-

tives, they should be able to move more

nimbly on social media than corporate

behemoths that dominate the industry.

During its first three years, Castore

grew to a £10 million turnover without

spending a penny on outside market-

ing. “We have been able to scale more

rapidly than if we’d started out ten or 15

years ago and needed stores. We go di-

rectly to shoppers and it’s almost as

simple for us to acquire a customer in

South Korea as it is in south London.”

Tom believes he can sign partner-

ships with other international football

clubs, as Nike and Adidas concentrate

their efforts on only the very top teams.

“Any club that’s outside of the small

clique doesn’t get the marketing

support, product development or inno-

vation, we can offer that,” he says.

In order to fully compete on the glob-

al stage, Tom said that a stock market

listing was part of the plan within the

next three to five years. “We will need

the liquidity to do what we want to do,

which is take on the goliaths.” They

have already turned down advances

from private equity, preferring to work

with high-net-worth individuals who

don’t require them to cede control.

“We’re not going to be serial entre-

preneurs or think of it as a side hustle or

any of that kind of modern, trendy stuff.

We knew that if we’re going to do this,

we were not planning on doing any-

thing else,” Tom says.

t

FC and the West Indies cricket team “

ROSS WOODHALL; DARREN GERRISH/CASTORE; GARETH COPLEY/ GETTY IMAGES