The Times - UK (2020-08-06)

34 2GM Thursday August 6 2020 | the times

Business

share prices has grown during the

pandemic. The turmoil caused by

Covid-19 has caused a severe slump in

clothing sales, putting pressure on

M&S’s balance sheet and prompting it

to scrap its dividend. Long-term M&S

income investors punished the

company and its shares today are 38 per

cent lower than they were at the start of

March, valuing the 136-year-old high

street stalwart at £1.92 billion.

In contrast, Ocado’s shares have

soared amid an explosion in online

shopping to the extent that it is valued

contrast to the £155 million of profit last

year. WH Smith has suffered from a

nosedive in the number of passengers

visiting its stores in airports and train

stations. The travel business, which

City had long been prodding M&S to

find a way to sell groceries online, when

it announced the Ocado joint venture

its shareholders were less enthused

about the price the company was

paying to step, albeit belatedly, into the

21st century. M&S revealed plans to

raise £600 million to fund the venture

and to slash its dividend by 40 per cent.

Its shares tanked, which Mr Norman

suspects was partly because there was

limited overlap between the retailer’s

investors and those of Ocado, which, as

a technology business, trades on an

inflated multiple of revenues.

“A lot of our shareholders saw M&S

as a cash-generative company that

didn’t do an awful lot,” he said. “This

was a bolt from the blue. Normally in

deals there is some shareholder

overlap, but a lot of our shareholders

deliberately hadn’t invested and were

Ocado-sceptic.

“Some of our shareholders were also

very opposed to a rights issue. It is an

expensive way to raise money and I

don’t much like them, either.” M&S has

since parted ways with Humphrey

Singer, the finance chief in charge of

pricing the rights issue.

The stock market believed that M&S

had paid the price for playing catch-up

and Ocado was perceived to be the

winner in the deal. Mr Steiner, a former

Goldman Sachs banker, strongly

rejects this and insists there is huge

potential for both sides in combining

the strengths of M&S’s food brand and

Ocado’s delivery expertise.

Unlike Ocado’s previous

20-year contract with

Waitrose, M&S owns half

the retail business that is

responsible for almost all

Ocado’s sales. Mel

Smith, 46, former

strategy director

at M&S who led

the deal talks, has

been made chief

executive of the

joint venture.

Senior figures on

both sides believe

that M&S share-

holders are yet to

properly value the

future benefits of the

tie-up.

This has been

particularly striking

as the gulf between

M&S and Ocado’s

1

Amazon has been accused of

“opting out” of fair taxes after

passing on the cost of a levy

aimed at global technology giants

to British small businesses. The

digital services tax was introduced

in April as part of the

government’s attempt to tackle

online companies that pay little

UK tax and to level the playing

field with physical retailers, such a

high street shops. Page 1

2

Marks & Spencer has copied

some of Waitrose’s most

popular items and developed

750 new food products in an

attempt to stop customers

abandoning Ocado before its

grocery tie-up begins. About 4,670

Marks & Spencer products

appeared on Ocado’s website

yesterday, well ahead of the launch

on September 1. Page 5

3

TikTok, the popular video-

sharing app owned by

Bytedance, is to open its first

European data centre in Ireland in

a $500 million investment,

cementing the company’s

determination to remain active

outside of the United States in the

face of a threatened ban by

President Trump. Page 33

4

Accor has created a “hotel

office” concept aimed at

heping people to escape the

distractions of working from

home. Workers can book a room

from 9am to 6pm that provides

“an uninterrupted, premium

working experience”. Page 33

5

Hundreds of e-scooters are to

arrive on Cambridge’s streets

in time for the new university

term to replace the tradition

student transport, the old bicycle,

after the city embraced the craze

by handing an exclusive contract

to Voi, a Swedish group. Page 33

6

WH Smith, the high street,

rail station and airport

retailer, is to cut up to 1,500

jobs after the disruption caused by

the national lockdown and travel

restrictions pushed the company

deep into the red.

7

The latest figures from the

Society of Motor

Manufacturers and Traders

showed that new car registrations

in July rose to 175,000 vehicles,

11 per cent higher than in the same

month last year. Page 36

8

Legal & General, the insurer,

shrugged off the impact of

coronavirus-related claims to

report first-half operating profits

down only 6 per cent to

£946 million. It declared an

unchanged interim dividend of

4.93p and will pay £300 million to

shareholders next month. Page 38

9

Hastings has agreed to a

£1.66 billion cash offer from a

consortium led by Sampo, the

Scandinavian insurance group. The

motor insurer recommended a

250p-per-share offer from Sampo

and Rand Merchant Investment,

the South African fund manager

that already owns 29 per cent of

the business. Page 39

10

William Hill, the betting

group, is to return

£24.5 million of furlough

funds that protected 7,000 retail

jobs after a recovery in revenues as

live sport returned and the

lockdown was eased. Page 40

Need to know

On your Marks: Ocado deal t

M&S joint venture launch date

September 1

M&S

Ocado

Number of food products sold

6,000

55,000

Delivery charge

Zero to £6.99 or free with Smart

Pass at a cost of £10.99 a month

Speed of delivery

60-minute zoom service in London,

same day also available

12m

Number of food customers

M&S

Ocado 639,000

Average basket size

Number of M&S food shops

(including Simply Food franchise stores)

Number of Ocado warehouses

M&S Ocado

£14 £137.46

1,000

3

But will it deliver?

In Stuart Machin’s office, a miniature

Ocado lorry sits next to a clock

counting down the hours until Septem-

ber 1. The date is significant for the

Marks & Spencer’s food boss as it marks

the long-awaited launch of the retailer’s

sales with Ocado. “At the moment,” he

said this week, “we’re at 670 hours.”

In February last year, M&S and

Ocado confirmed that they were

launching a £1.5 billion joint venture

that — finally — would take M&S

groceries online.

Tim Steiner, 51, Ocado’s founder and

chief executive, had been wooing M&S

for 18 years, but talks between the two

sides turned serious in 2018, prompting

negotiations codenamed Project Bear,

a nod to M&S’s headquarters in Pad-

dington, central London.

Steve Rowe, 53, the M&S lifer who

became its chief executive in 2016, is

emphatic that he always wanted to take

M&S food online, but only if it could be

done profitably. That proved to be a

challenge. He ran several trials,

including a courier service, one-hour

deliveries on scooters and click-and-

collect counters, but there were several

key hurdles that had to be cleared.

The first was M&S’s average basket

size. At £14, that made the cost of online

food deliveries, thought to be above

£10 per order, totally uneconomic.

Second, unlike other supermarket

groups, which pick online orders from

their stores, only 40 of 1,000 M&S food

shops are big enough to carry its full

range of produce and there is a

widespread lack of the extra

space required for staff to

sort through online orders.

Third, building its own

warehouses for online

food orders would

require further

delays and a huge

investment, which

wasn’t appealing

because of M&S’s

terrible record

with logistics.

“We were

pretty short of

options,” Archie

Norman, 66, the

chairman of M&S,

said.

Yet although the

In the first of a three-part series, Retail Editor

Ashley Armstrong outlines how Middle England

will become the battleground for store wars

Tim Steiner, left, and

Steve Rowe have

high hopes online

WH Smith to slash 1,500 jobs as losses mount

Up to 1,500 jobs are to be cut by

WH Smith after the disruption caused

by lockdown and travel restrictions

pushed the retailer deep into the red.

WH Smith said yesterday that it had

taken the “difficult decision” to review

store operations across its high street

and travel businesses, which includes

units in airports and stations. This will

result in collective consultation that

could lead to up to 1,500 roles being

made redundant, about 15 per cent of

the company’s entire workforce.

The vast majority of the job cuts are

likely to be in WH Smith’s travel

business, reflecting the slump in the

division’s revenues. About 14 travel

shops are expected also to close,

although it is understood these are its

smallest travel kiosks, which tend to be

located near a larger WH Smith shop.

Around 400 high street jobs will be lost

after the business decided to remove

store manager roles from its shops. The

job losses are expected to cost the busi-

ness between £15 million and £19 mil-

lion in redundancy pay.

WH Smith, which traces its roots

back to 1792, has 560 travel shops in this

country and a further 247 overseas after

an ambitious international expansion

programme. It also has 575 high street

book and stationery shops. The com-

pany employs a total of 14,000 staff.

It said that tumbling sales meant that

it was now likely to suffer an underlying

loss of between £70 million and £75 mil-

lion for its financial year to the end of

August — almost double the loss it had

predicted back in March and a stark

used to account for three quarters of

profits, saw a 92 per cent fall in sales

during April and sales remain 73 per

cent lower in July.

In April high street sales were down

by 71 per cent, but this recovered to a

25 per cent fall as stores reopened.

Carl Cowling, 46, chief executive,

said: “We now need to take further

action to reduce costs across our busi-

nesses.” WH Smith said that it was con-

fident it had funds to continue during a

prolonged downturn after it tapped in-

vestors for £165 million in April and se-

cured access to the government’s loan

facility in addition to its bank loans.

Shares rose 14p, or 1.4 per cent, to

999½p as investors gave the restructur-

ing plan a cautious welcome. WH

Smith shares have fallen by nearly 60

per cent this year.

Ashley Armstrong Retail Editor 6 About 1,500 staff at hotels

managed by LGH in England and

Scotland have been told that they

are at risk of redundancy because of

the pandemic. LGH, which manages

2,500 staff at 55 hotels, including

some Crowne Plaza, Holiday Inn

and Hallmark hotels, said that the

staff were in a consultation period,

according to the BBC. Joanne

Monk, of LGH, said no firm

decisions had been made about how

many jobs would be cut and the

hotels would run with skeleton staff.