Ikea, JD Sports, Morrisons: Business news in brief Wednesday 14 September 2016

Swedish furniture giant unveils ambitious China and India growth plans; Sportswear chain posts 'astonishing' growth; Supermarket aims to stem four years of losses amid brutal price war

Ikea posted strong growth but CEO is targeting more ambitious expansion plans (Reuters)

Ikea targets China expansion as profits rise 7%

Ikea Group laid out plans to accelerate its expansion in China and open its first store in India as the world’s largest furniture retailer seeks to boost sales by almost 50 per cent over the next four years. In China, where the company opened its first store almost two decades ago, sustained growth will enable an accelerated pace of expansion, Peter Agnefjaell, Ikea chief executive, said on Tuesday. Ikea plans to open its first outlet in India next year and aims to have 25 there by 2025, he said. The retailer has a goal for revenue of €50bn (£42bn) by 2020. Sales in the 12 months to August rose 7.1 per cent to €34.2bn (£29bn), it said on Tuesday. The expansion in China and India, the world’s two most populous countries, may help the company achieve the target as sales growth stalls in Russia amid an economic slowdown.

Ikea will accelerate the pace of its Chinese expansion to five stores a year from the three it opened in the past year, Mr Agnefjaell said. It currently has 21 stores in the country. In India, the company has started construction of its first store in Hyderabad, has bought land in Mumbai and is also looking at cities such as Delhi and Bangalore. “India is one of the biggest growth markets we see going forward,” Mr Agnefjaell said. “But it of course hinges on a continued good economic development.” India’s gross domestic product rose 7.1 per cent in the second quarter, though that was the slowest pace of growth in more than a year. Ikea’s total store numbers in the 2017 financial year will be about the same or slightly higher than in the past year, Mr Agnefjaell said.

Bloomberg

JD Sports posts ‘astonishing’ growth

JD Sports reported first-half earnings growth that showed why it has surged past Mike Ashley’s Sports Direct among UK athletic-gear retailers. Underlying pretax profit jumped 66 per cent to £77.4m, the Bury-based company said on Tuesday, an outcome described as “astonishing” by independent retail analyst Nick Bubb. The shares rose as much as 8.3 per cent to a record high. While still smaller than Sports Direct in sales, JD Sports has sprinted past its larger rival in market capitalisation, now being valued at £2.8bn compared with its competitor’s £1.9bn. By stocking exclusive ranges from Adidas and Nike in bright, spacious outlets, JD has attracted a new breed of fashion-savvy customers as Sports Direct’s stack-it-high, sell-it-cheap strategy has fallen out of favour.

JD Sports “is clearly differentiated” from Sports Direct, Cantor Fitzgerald analyst Freddie George said. In addition to having the support of Adidas and Nike, the retailer “has significant potential to be developed overseas, where it now has momentum.” The first-half profit boost was based on same-store sales growth of 10 per cent in the company’s main sports retail business. It also has an unprofitable camping unit that includes the Blacks and Millets chains. While still predominantly a UK business, JD is making strides across Europe and beyond. It acquired 12 stores in Portugal in July and is due to open outlets in Brussels and Cologne, Germany, in the second half of the year. It has also acquired stores in Malaysia and Australia.

Bloomberg

Morrisons on course to return to profit

(AP)

Eighteen months after chief executive David Potts took over, Morrisons is on course to return to profit growth this year after four years of falls caused largely by the rapid advance of German discounters Aldi and Lidl. That would put Morrisons, the country’s fourth-largest supermarket group, on a par with market leader Tesco, which is expected to post a small rise, and ahead of second-biggest player Sainsbury’s which is set to post another fall. Analysts forecast Morrisons will report underlying pretax profit of £150m for the first half of the year on Thursday, up from £141m in the same period of 2015.

The firm has reported two consecutive quarters of like-for-like sales growth and is expected to report a third on Thursday. Given current forecasts it is likely to be the strongest of the big four, which also includes Wal-Mart's Asda, on that measure over the first half. There is also some evidence that the group may be in a stronger position than its peers to cope with the consequences of the Brexit vote. Morrisons has invested heavily in food production and packing and now has 14 plants, making it Britain’s second biggest food manufacturer and most integrated food retailer. While data is sparse, Morrisons says it imports less of the food it sells than the 40 per cent industry average. This would make it less exposed than rivals to the pound’s fall of 9 per cent against the euro and 11 per cent against the dollar. Mr Potts has cut prices twice since the referendum on 23 June.

Morrisons also has a very small non-food offer, shunning the trend of other big supermarkets which sell everything from coffee-makers to washing machines and televisions. With many of those goods imported, here too Morrisons is less exposed to currency swings or a fall in consumer confidence.

Reuters

Football Pools to be sold in £100m deal

The Football Pools is to be sold to its management team in a deal worth nearly £100m. The owner of the world’s oldest football gaming company, Sportech, has entered into exclusive talks with private equity firm Burlywood Capital, which has proposed setting up a new Aim-listed company that will then buy the Pools for £97.25m. The directors of the new firm include the Pools’ current managing director Conleth Byrne, who will become chief executive, finance director Carl Lynn and Sportech's former chief operating officer Ian Hogg, who will chair the company. The deal will be bankrolled through a combination of debt and equity, with Sportech saying the deal “represents an attractive opportunity” following a modernisation programme.

Punters no longer fill in paper coupons to bet on football results, with the Pools now operating online. Around 300,000 players stake their cash each week in the hope of winning a maximum £3m. Football pools began in 1923 in Manchester, with Littlewoods selling coupons. But the firm has struggled since the National Lottery was launched in 1994. Nevertheless, Sportech said that operating profit for the Liverpool-based Pools came in at £7m for the first half of the year. Sportech consists of three divisions: Sportech Racing and Digital, Sportech Venues and the Football Pools.

PA

Job cuts and closures at Clydesdale and Yorkshire Bank

(Reuters (Reuters)

The Clydesdale and Yorkshire banking group signalled more job losses and confirmed around another 50 branches will close, as it ramps up cost cutting. Glasgow-based CYBG, which was spun off from former owner National Australia Bank in February, said it will trim its branch network from 248 to fewer than 200 over the next three years as it looks to slash costs by a further £100m. CYBG's latest cost-cutting moves come after it recently announced plans to shut 26 branches nationwide by the end of September and reduce its workforce, with nearly 500 jobs axed over the past 18 months.

It will deliver the new cost savings by the end of September 2019 to help it meet performance targets earlier than planned. The challenger bank said its “refreshed” strategic plan also takes into account revised expectations for the UK economy after the Brexit vote.

PA

Hanjin bosses use personal fortunes to save stranded ships

Cho Yang-Hohas stepped in to save Hanjin Shipping (Reuters)

South Korea's Hanjin Shipping says it has received £34m from its current and former chiefs to relieve its global cargo crisis. The chairman of Hanjin Shipping, Cho Yang-ho, spent 40bn won (£26.8m) from his personal assets on Tuesday, said Hanjin Shipping spokeswoman Min Park. She said former Hanjin Shipping chair Choi Eun-young contributed 10bn won (£6.7m). The cash-strapped container shipper will use the money to pay for unloading billions of dollars’ worth of cargo stranded offshore on its ships. The company, South Korea’s top ocean shipper, filed for bankruptcy protection on 31 August.

Ms Park would not say how much money Hanjin needs to resolve the entire cargo crisis, citing business confidentiality. Hanjin Shipping is still awaiting 60bn won (£40m) pledged earlier by its parent company. The company said 93 of its vessels were stranded offshore as of 11 September, including 79 container ships. Four ships have been seized by creditors.

AP

Ocado shares hammered as it warns of falling profits

The Ocado website (Matt Cardy/Getty Images)

Ocado’s shares fell almost 15 per cent yesterday as the online grocer said profits will probably fall below analysts’ estimates, showing the effects of a damaging UK price war. Duncan Tatton-Brown, chief financial officer said he “wouldn’t be surprised” if analysts cut their estimates for the company’s full-year earnings before interest, tax, depreciation and amortisation as persistent UK food deflation pressures its margins. Ocado is mired in a longstanding price war with mainstream chains, as grocers struggle to fend off discounters. Amazon, last week extended its Fresh grocery delivery service across most of London.

“There aren’t many retailers who can turn a blind eye to Amazon turning up in their backyard, and Ocado is no exception,” said George Salmon, an analyst at Hargreaves Lansdown. “Despite higher sales and order numbers, competitive forces are likely to keep margins under pressure for some time.”

Bloomberg

Samsung blames battery flaw for Note 7 fires

Samsung has suspended sales of the Galaxy Note 7 after reports of exploding batteries (Getty Images) (Getty)

Samsung has blamed a minor battery manufacturing flaw for prompting a global recall of its Galaxy Note 7 smartphones and is seeking more time to investigate the cause behind its deepest crisis in years. The Korean company outlined the preliminary findings in a report to the country’s technology standards agency that has not previously been released. Initial conclusions indicate an error in production that placed pressure on plates contained within battery cells. That in turn brought negative and positive poles into contact, triggering excessive heat. Samsung stressed that it needed to carry out a more thorough analysis to determine “the exact cause” of battery damage.

While executives have referred publicly to manufacturing slip-ups, Samsung’s report went into more detail about the potential flaws in battery design. The company has scrambled to contain the fallout after 35 cases emerged of the Note 7 overheating or combusting.

Bloomberg

Chinese demand for compact cars drive Audi sales

Audi increased global sales 2.9 per cent in August on strong demand in its key Chinese market for luxury compact cars, including the A3 and Q3 models. The Volkswagen-owned division on Tuesday said deliveries rose to 132,350 autos last month from 128,647 a year earlier, with eight-month sales up 4.9 per cent at 1.23m. Sales in China were up 8.8 per cent at 49,154 cars, expanding year-to-date registrations in Audi's largest market 6.8 per cent to 361,315. German luxury rival BMW earlier on Tuesday reported a 5 per cent increase in brand sales to 142,554 cars, with eight-month sales up 5.5 per cent at 1.28m.

Reuters