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Retail round up - The Sunday papers
Marks and Spencer faces City's biggest revolt, Government asks stores to stockpile food to overcome hauliers strike, Bank of England urged to hold interest rates, Lingerie lifts TU sales at Sainsbury, Leisure group Inspired Gaming close to selling pubs division, Marks & Spencer calls halt to buyback, Recession threat as UK jobs vanish, Uplifting news for Ultimo's 'Bra Queen', Shareholders plan 'bloody nose' for M&S over succession vacuum
The Sunday TimesShareholders in Marks & Spencer will stage the biggest revolt in recent City history this week when up to a third of them vote against or abstain from the election of Sir Stuart Rose as executive chairman. The proportion of rebels is unprecedented for a FTSE 100 group. A 5%-10% vote against would normally be regarded as high.
Rose will also be questioned over M&S's dire recent sales performance. Last week he revealed an unexpected 5.3% dip in sales, and warned of a two-year downturn in consumer confidence. M&S shares dived on the warning, finishing the week 32% down at 227p. In the past 12 months the shares have dropped 64%. This values the company at £3.6 billion. City institutions hold most of the retail group's shares. Yesterday City sources said the board was resigned to a revolt among 20% to 30% of shareholders, with about half of the rebels voting against Rose's election and half abstaining — a traditional City way of indicating displeasure without registering a no vote. A source close to Rose defended his decision to take up the dual role: “Stuart was genuinely undecided about whether he should go or stay. After discussions with the board he thought holding both posts would be a good in
Shiret said M&S will have £3.4 billion of debt by the end of the year with ebitda (earnings before interest, taxes, depreciation and amortisation) of £1.2 billion.
“We are talking about a ratio of three times debt to ebitda, which is looking highly borrowed,” he said. “The share buyback strategy and capital spending programme have eroded its cash position. “A lot of investors take comfort in M&S's property portfolio, but the value of property is falling and 40% of the portfolio is pledged to the pension fund. “The company has much less asset backing than is generally believed, and the danger for the shares is that they start to be valued on the same, low multiples as other clothing retailers with low asset backing.”
Ministers are in talks with supermarkets about emergency food reserves in case fuel protests lead to shortages at shops. The government wants to ensure retailers and suppliers can continue to sell basics such as meat, bread and milk if hauliers bring the country to a halt. They have asked supermarkets to make contingency plans “in case the infrastructure of the country breaks down”. Among those who have taken part are farmers, dairies, bakeries and supermarkets. Normally supermarkets operate on the basis of “just in time” deliveries, designed to cut waste by ensuring supplies just match demand. The government is keen to ensure stocks of essentials do not run out if the system is derailed because lorries cannot make their usual deliveries. Tesco, which has played a key part in the discussions, wants the government to allow it and other suppliers to sit in on the cabinet's emergency committee, Cobra, in the event of a crisis.
Business has urged the Bank of England to keep interest rates on hold at 5% this week and be ready to cut them in the coming months to head off a recession.
After a week of bleak economic news, pressure on the Bank's monetary policy committee (MPC), which meets this week, is intensifying. The outlook is more worrying than at any time in the Bank's 11 years of independence.
The slump is putting huge pressure on retailers. On Friday, John Lewis became the latest to report falling sales, down 8% at end June. Sales of big-ticket items — electricals and household goods — dropped sharply. Earlier in the week Marks & Spencer reported an unexpected drop in sales, sending its shares plummeting.
The FTSE General Retailers index — which tracks the share prices of quoted retail groups — has now fallen by 55% in the past year, and is at its lowest level since 1991.
Analysis for The Sunday Times by Company Watch, an independent research group, shows that 45% of quoted retailers are under financial pressure. Three years ago the proportion was only 27%.
Company Watch scores firms' strength out of 100 by monitoring key financial ratios. If a company's score falls below 25 it is judged to be in the “warning” zone. Of the 60 quoted retailers checked, 27 now have scores below 25.
“Any sector will have about one-quarter of companies under 25 at any one time. But this is a high proportion. Experience tells us that six or seven of these retailers will be in financial difficulties over the next few years,” said Company Watch's Guenter Steinitz.
TU, the clothing brand owned by Sainsbury's, has captured 1% of the market with annual sales of £300m, thanks in part to a 100% rise in sales of lingerie at the supermarket chain in the past year. TU has now overtaken Topshop to become the UK's 11th-largest clothing retailer. Adrian Mountford, head of TU clothing, said: “This is a tremendous milestone.” Richard Jones, the executive who spent five years spearheading Sainsbury's expansion in clothing and homewares, defected to Tesco last month. The departure would not affect plans for expansion in nonfood, Sainsbury said.
The leisure group Inspired Gaming, which makes and distributes amusement machines, is close to a deal to sell its pubs division to rival Danoptra in a move that could save 850 jobs. Inspired is also thought to be close to completing a £40m fundraising. Part of the proceeds will be used to meets the cost of its exit from the pubs business. The leisure group said in May it would sell or close the division, which has suffered because of a downturn following the smoking ban.
Rival Danoptra, which was recently taken over by Credit Suisse and Blue Bay, the fund manager, is in advanced talks to acquire the business and merge it with its existing operation.
The Sunday Telegraph
Marks & Spencer has suspended its £600m share buyback. The suspension comes just days before M&S's crucial shareholder meeting, at which executive chairman Sir Stuart Rose will seek to convince investors that M&S can weather the economic downturn. Last week M&S shares lost 33 per cent of their value following a surprise profit warning. M&S's share buyback programme has been criticised by City analysts as "misguided and mis-timed". M&S bought back 2m shares on June 19 at 339p, the day before the company went into a closed period. Following last week's profit warning, shares in M&S closed at 227p. The retailer was free to resume the share buyback on Wednesday, but has yet to do so despite the sharp fall in the M&S share price.
The threat of rising unemployment in Britain will be driven home this week by news that the number of permanent jobs available has fallen for the first time in five years.
This is one of several findings in a survey of employment agencies that also reveals that the number of people looking for work rose in June and the growth in demand for temporary staff is easing. City economists say that the risk of the current slowdown escalating into Britain's first recession in almost 20 years will be determined by how aggressively companies cut staff to shield profits from a painful mix of slowing demand and rising costs. KPMG-REC's monthly survey, to be released on Tuesday, will also show that the number of permanent placements dropped in June for the fourth month in five and are now falling at their fastest pace since 2003.
This snapshot of the labour market follows hot on the heels of a warning from the Organisation for Economic Co-operation and Development that unemployment in Britain will rise by 100,000 over the next two years.
Sir Tom Hunter and Ian Grabiner have sold out of Ultimo, the cleavage-boosting bra and lingerie company run by Michelle Mone. Hunter and Grabiner stepped in with emergency funding after Ultimo nearly collapsed soon after its launch in 1999, but the company has since prospered and Mone has built up a reputation as one of Scotland's top entrepreneurs.Hunter and Grabiner last month sold their shares for a combined £800,000. Hunter received £640,000 for 80 per cent of the company's "B" shares, with Grabiner taking the remaining £160,000. Mone, who declined to say how much the two businessmen had initially invested, said she was "delighted" to have gained full control of the company with her husband, Michael. She said Hunter had been "extremely supportive" and had made a healthy return on his investment, reported to have been between £100,000 and £300,000.
The Observer
The Marks and Spencer board will this week face an embarrassing protest vote at its AGM from shareholders angered by the decision to promote Sir Stuart Rose to executive chairman. A number of institutional investors told The Observer they planned to spell out their objections by voting against the retailer's report and accounts while abstaining on Rose's re-election. The tactical voting aims to make a point without ousting Rose, given the retailer's precarious position after a shock profit warning this week that sent its shares into freefall. 'We are sending a message to M&S that we want succession planning to be taken seriously,' said Pat Wade, corporate governance manager at the Co-operative Insurance Society, which owns 2m shares. 'There are inherent risks in the concentration of power and this can create material risk in the operating performance and independent strategic view a board can offer.'
Another shareholder said: 'Quite a lot of institutions are planning to withhold their support from the election of Rose. We don't necessarily want him to be thrown overboard but are pretty happy for the company to get a bloody nose.'
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