Poundland, Mulberry, Volkswagen: Business news in brief on Friday June 17

Poundland plummets, Mulberry bounces back and Adidas claims victory over Nike as FTSE hits a four-month low and fears gather over London housing market

The FTSE hit a four month low as companies released mixed results

Poundland profits plunge to £37.8m amid takeover interest

Holly Williams

Takeover target Poundland has posted a slump in annual profits after a “challenging but transformative” year as its suitor stepped up its pursuit with a 23 per cent stake in the business.

South African retail group Steinhoff - which owns UK furniture firm Harveys and Bensons For Beds - revealed late on Wednesday that it had bought 61.2m ordinary shares in the budget retailer and confirmed any potential offer would be made in cash.

Its bid interest comes after a testing time for Poundland, which had seen its shares slump by a third in a year following tough trading and a difficult takeover of rival 99p Stores.

Annual results laid bare the group's sales woes as underlying pre-tax profits fell 13.5 per cent to £37.8m in the year to March 27.

Bottom-line pre-tax profits crashed 83.7 per cent to £5.9m, but this includes converted 99p Stores.

Poundland has advised shareholders to “take no action” following Steinhoff's announcement on Wednesday that it is considering a bid.

The move marks the latest takeover attempt by Steinhoff, after it lost out in a battle with Sainsbury's to buy Argos owner Home Retail Group in March and was outbid for London-listed white goods retailer Darty.

Steinhoff has until 5pm on July 13 to make a firm bid for Poundland or walk away under City takeover rules.

© Associated Press

Mulberry profits rise by £4.3m after it cuts prices

Mulberry has recorded a surge in full-year profits as the luxury handbag brand continues to swing back into fashion.

The firm said pre-tax profit rose from £1.9m to £6.2m as the Somerset-based company's turnaround under chief executive Thierry Andretta continues.

Sales rose 5 per cent to £155.9m as Mr Andretta hailed “significant progress” domestically and internationally.

He said: “Mulberry has made significant progress during the last financial year with solid growth achieved in revenues and profit.

“Looking forward, we will invest further in developing exciting new product, whilst continuing to engage with our core UK and growing international customer base.”

Last year Mulberry's profits were hammered after it attempted to move upmarket and compete with the likes of Gucci and Dior, but sales have bounced back strongly after it cut prices.

Mr Andretta added that new ranges by creative director Johnny Coca had been well-received.

Like-for-like sales at Mulberry were up 8 per cent over the year, with digital sales rising 19 per cent. While its international arm also recorded growth, the firm said that it shut three stores in the US.

© Bloomberg L.P.

Airbus superjumbos discounted 40 per cent to spur demand

Richard Weiss and Andrea Rothman

Used Airbus Group SE A380 superjumbos are being offered at a 40 per cent discount to the $2m-plus monthly rental rate for a new plane as leasing firm Doric seeks to spur demand for the second-hand jets.

Doric is in talks with a number of potential operators for a tranche of double-deckers that could be returned by Singapore Airlines Ltd. and Dubai-based Emirates from 2017 following the completion of 10-year leases, Sibylle Paehler, the lessor’s managing director, said in an interview.

Interested parties span second-tier airlines that haven’t yet flown the A380 through charter carriers and companies that specialize in so-called wet-lease services, in which jets are provided for a limited term complete with crews.

“Each has a different business model, so it’s hard to make precise forecasts on the most-likely future use,” Paehler said, adding that the main stumbling block is that “nobody wants to be first” in announcing a deal for a 550-seat plane whose popularity as a second-hand transport has yet to be demonstrated.

Airbus has suggested the A380 might have a second life plying six-to-eight-hour routes for low-cost Asian airlines. The manufacturer is continuing to seek fresh sales avenues after order momentum slowed in recent years.

© Bloomberg

Bank of England holds rates at record low whilst warning of Brexit damage to UK economy

Scott Hamilton & Jill Ward

Just one week before the UK votes on its membership of the European Union, Bank of England policy makers repeated their warning that quitting the bloc could damage the economy.

In a statement on Thursday accompanying their June decision to keep the key interest rate at a record-low 0.5 per cent, the Monetary Policy Committee led by Governor Mark Carney said uncertainty surrounding the vote was already having an impact and this could heighten in a Brexit scenario. This could mean a “materially lower path for growth and a notably higher path for inflation.”

“A vote to leave the European Union could materially affect the outlook for output and inflation,” the committee said. “In the face of greater uncertainty about the U.K.’s trading arrangements, sterling was likely to depreciate further, perhaps sharply.”

The prospect of Britain exiting the world’s largest trading bloc has fuelled nervousness across the globe, with the Federal Reserve saying on Wednesday that the referendum was a factor in its decision to keep interest rates on hold.

The Swiss National Bank kept its rates unchanged Thursday, warning that the U.K. vote has the potential to cause “enormous stress” in Europe.

The BOE echoed this assessment, saying the referendum was having an “increasingly widespread” impact on asset prices. It added that the vote remains the “largest immediate risk facing U.K. financial markets, and possibly also global financial markets.”

© Bloomberg

British Airways owner says Won’t tell Britons how to vote on EU

Maria Tadeo and Christopher Jasper

British Airways owner IAG SA said it won’t tell Britons how to vote in next week’s poll on whether to quit the European Union, setting it apart from dozens of prominent U.K. companies that stand opposed to a Brexit.

“IAG has taken a business decision — not a political view — on the referendum,” Chief Executive Officer Willie Walsh told London-based IAG’s annual shareholder meeting.

“We believe it’s a decision for the British electorate and we’re not going to advise people about how they should vote.”

Walsh, addressing investors in Madrid, where IAG’s Iberia arm is based, added that an analysis of the likely fallout from a victory for the “Leave” campaign suggests that IAG has nothing substantial to fear.

“As a responsible company we’ve undertaken a risk management assessment and, at this stage, we have concluded that should Britain leave the EU it will not have a long-term material impact on our business,” he said.

IAG Chairman Antonio Vazquez said in response to a question from the floor that both airlines and consumers have benefited from free trade and a common aviation area, and that he personally favors Britain staying in the EU.

© Bloomberg

UK retail sales beat forecasts as shoppers snap up new clothes

David Milliken and Ana Nicolaci da Costa

British annual retail sales growth unexpectedly picked up speed in May after a bumper performance in April, boosted by a big increase in clothing sales from the month before, official figures showed on Thursday.

Shoppers showed no sign of holding back in the run up to June's referendum on European Union membership, which had previously knocked some measures of household sentiment.

Retail sales volumes rose 6.0 per cent in May, the biggest annual rise since September, the Office for National Statistics said, above all forecasts in a Reuters poll of economists.

April's retail sales growth was revised up to 5.2 per cent from 4.3 per cent, which the ONS said reflected an unusually high amount of data received late from stores.

Compared with a month earlier, sales volumes were up 0.9 per cent, much less of a slowdown than economists had expected after monthly growth of 1.9 per cent in April, which also reflected an upward revision.

Much of May's strength was down to a big rebound in clothing sales, which unlike other sectors had performed relatively weakly in April when colder than normal weather dampened demand.

In May, clothing sales jumped by 4.3 per cent on the month - the biggest rise in over two years - boosted by better weather.

Looking at sales in the three months to May - which smooths out some volatility in the data - volumes were up 1.5 per cent on the previous three months, the biggest rise since November 2015.

Consumer spending has been a major driver of Britain's economic expansion over the past three years, but household confidence has slipped to its weakest since late 2014 in the run-up to a June 23 referendum on European Union membership.

© Reuters

Adidas beating Nike in Europe football boots battle, claims CEO

Emma Thomasson

Adidas expects sales of football boots, shirts and balls to rise 14 per cent to a new record of 2.5bn euros (£2bn) in 2016, helped by reclaiming leadership of top European markets for football footwear from arch rival Nike.

Germany's Adidas has long been the world's top football brand, but it was overtaken in the market for boots in 2014, prompting Adidas to launch popular new ranges and to focus its marketing spending on more top teams and players.

Chief Executive Herbert Hainer told journalists in Paris that Adidas had edged ahead of Nike to take 36 per cent of the market for football boots in the top five markets in Europe.

Nike has declined to comment on its latest football sales before its next earnings update which is scheduled for June 28.

Adidas said it expects to sell 1.3m Germany jerseys this year, helped by the European championships now being played in France. That is more than the 1m it sold in 2012 when the last Euro tournament took place, but down from the 3m shirts it shifted in 2014, when Germany won the World Cup.

Citing weak demand, some retailers have already started offering Germany shirts for below the recommended price of 85 euros, but Adidas football head Markus Baumann said they might regret that as sales were strong now Euro 2016 was under way.

Footwear and balls together account for about half Adidas' expected sales of football gear of 2.5bn euros, while replica team shirts make up the rest.

Germany is kitting out nine of the 24 teams playing at Euro 2016, including reigning champions Spain, while Nike has six teams, including hosts France and England, and smaller German brand Puma has five, including Italy.

© Reuters

Volkswagen bets on electric cars and services to recover from scandal

Georgina Prodhan and Mark Potter

Volkswagen will invest more than 10bn euros ($11bn) by 2025 in areas such as electric cars and ride-hailing as it seeks to reshape its business in the wake of its emissions-test cheating scandal, it said on Thursday.

Europe's biggest carmaker said it would fund what it dubbed “the biggest change process in the company's history” with an efficiency drive, including integrating components businesses that currently employ 67,000 people in 26 locations worldwide.

“The Volkswagen Group will be more focused, efficient, innovative, customer-driven and sustainable – and systematically geared to generating profitable growth,” CEO Matthias Mueller said, launching a plan called “TOGETHER – Strategy 2025”.

Volkswagen is battling to recover from the biggest business crisis in its 79 year history after admitting in September to cheating U.S. diesel emissions tests.

The German company has set aside $18bn to cover the cost of vehicle refits and a settlement with U.S. authorities, and analysts expect more fines and legal costs.

The scandal has cast a shadow over the entire market for diesel cars, which account for about half of new vehicle sales in Europe, and has ramped up pressure on Volkswagen to cut costs at its namesake brand, which lags the profitability of rivals.

Spelling out a new strategy ahead of its annual shareholder meeting on Wednesday, the company said it planned to launch more than 30 electric vehicles over the next ten years, forecasting they would account for 2-3m unit sales in 2025, compared with a tiny number currently.

It also said it would build a services business encompassing areas such as ride-hailing and car-sharing that it expects to generate sales in the billions of euros by 2025, as well as developing its own autonomous driving and battery technologies.

© Reuters

EU referendum fears drag FTSE to four-month low

Robin Pomeroy

Britain's main share index slipped to its lowest level in nearly four months on Thursday due to growing nervousness about next week's vote on UK membership of the European Union.

Investors were also cautious after the Federal Reserve cut its growth forecast and Fed Chair Janet Yellen acknowledged Britain's possible EU exit would have consequences for economic and financial conditions globally.

“Usually traders will push equity markets higher if the Fed is going to stay on the dovish side, but today is not that day,” Naeem Aslam, chief market analyst at TF Global Markets, said.

“Brexit anxiety has its own flavour and it is very bitter.”

Opinion polls have shown unexpectedly strong support for Britain leaving the EU in the June 23 referendum, prompting concerns about the impact on the bloc, the unity of the United Kingdom and the wider impact on global financial markets.

Polls by Ipsos MORI and Survation on Thursday showed the “Out” campaign in the lead, confirming a recent trend that has shown the momentum is with those who wish to leave the EU.

The blue-chip FTSE 100 index .FTSE was down 0.7 per cent to 5,922.12 points by 1131 GMT after falling to 5,907.63, its lowest since late February.

Cyclical stocks were the worst hit, with the UK banking index .FTNMX8350 falling 1.4 per cent to a two-month low. Shares in Royal Bank of Scotland (RBS.L), Barclays (BARC.L) and Lloyds (LLOY.L) fell between 1.7 and 2.6 per cent.

© Reuters

London Housing Market Facing ‘Major Shock’ After Tax Rises

Sharon Smyth

London’s housing market is facing a “major shock” as private landlords offload properties because tax increases will reduce returns on their investments to near zero, according to analysts at Deutsche Bank AG.

New lending rules will also severely restrict the ability of investors, who have accounted for about 40 per cent of purchases in recent years, to fund property purchases with debt, Deutsche Bank analysts Oliver Reiff and Markus Scheufler wrote in a report Wednesday. Landlords selling homes may create an excess of properties on the market, damping prices.

“This has the potential to create a major shock to the market,” the analysts wrote, recommending investors sell shares in Capital & Counties Properties Plc, which is developing homes in the Earls Court neighbourhood. “A material number of owners will face pain and squeezes on returns.”

CapCo fell as much as 4.5 per cent, the most since May 3, and was the biggest decliner in the 27-member Stoxx 600 Real Estate index. The shares were trading at 316 pence at 2:25 p.m. in London

Buy-to-let lending for home purchases fell 86 per cent by value in April from the previous month, according to data compiled by The Council of Mortgage Lenders. Berkeley Group Holdings Plc., London’s biggest homebuilder, said sales reservations fell 20 per cent in the five months through May, in part because of the increased taxes against rental investors. The referendum on EU membership has also impacted sales, the firm said.

© Bloomberg