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Tesco signage
October 23, 2014, 10:20am

Wanted: Heavyweight to lead a City institution. Must be good with numbers and new people. Retail knowledge preferred. Must be willing to have difficult conversations, understand customers and be confident in implementing new strategies.

It’s a tough job. Is there anyone who would want to fill chairman Richard Broadbent’s shoes at Tesco?

Steering a new management team and board, dealing with a turnaround that looks like steering the Titanic, and bringing back credibility to one of the UK’s (formerly) most respected institutions- some might see that as a challenge.

Who could be in the running to take that on?

Richard Cousins  

The current chief executive of food group Compass, Cousins recently joined Tesco’s board. He’s been fingered as the likely successor to Broadbent in the run up to today’s news in a number of reports. Shareholders are said to be happy with the choice.

However, Tesco is unlikely to want a new chairman who is also a chief executive. Would Tesco be able to tempt Cousins from a successful eight year stint at  Compass? And would Cousins want to jump to a leaky, if not quite yet sinking, ship?

John Gildersleeve

Gildersleeve is known as a City beast. Could he be about to sink his claws into Tesco and give it the shakeup it needs?

With two decades on Tesco’s board, he’s certainly experienced the ups and the downs, but will he prepared to be in the hot seat as it experiences further downs is another question or is he more of a fair weather man?

He knows the ropes having worked his way up from a shelf-stacker and checkout boy in the supermarket before making it to the board.

Archie Norman

The former boss of Asda credited with its turnaround also knows a thing or two about supermarket woes. Norman has also helped broadcaster ITV improve its performance, and share price.

Norman was previously linked with the chairman role at rival supermarket Morrisons. That didn’t come to fruition, instead that job went to Tesco’s former finance director Andrew Higginson.

Maybe it's the right opportunity for Norman to return to the retail fray this time.

Sir Terry Leahy

Would the man who led Tesco to the pinnacle of success want to return? An outsider to say the least, the temptation to resurface and remind everyone what can happen if things are not placed in his safe hands could be a draw, as would riding in like a knight on horseback to save the day. A reminder of the good 'ol days would likely be welcome at Tesco's Cheshunt headquarters.

Dove soap
October 23, 2014, 10:19am
While Dave Lewis is putting out one fire at his new employer Tesco, things back at Unilever are also looking less than rosy. 
 
The consumer goods business, where Lewis had worked for 28 years before becoming Tesco chief executive, this morning reported its weakest rate of quarterly sales growth in five years. 
 
Underlying sales grew just 2.1 per cent in the third quarter, compared with the 3.7 per cent growth experienced during the first half of the year – well below analyst expectations.
 
Unilever's share price dropped as much as 4.8 per cent this morning on the back of the news. 
 
Paul Polman said market growth slowed in emerging countries “particularly in China”, while price deflation and a poor summer in Europe also hampered performance, despite an improvement in North America.  
 
“Altogether this resulted in reduced third quarter growth, but still ahead of our markets,” Polman said. 
 
“We continued to invest behind our brands and innovations so that we are well-positioned for the long term growth opportunities which remain fully intact. 
 
“We expect markets to remain tough for at least the remainder of the year. We have further accelerated our initiatives to remove unnecessary cost, simplify the business and ensure that Unilever is both agile and resilient.
   
Publicis Groupe
October 23, 2014, 10:04am
The only way is digital for French communications giant Publicis Groupe, as digital increasingly makes up a bigger and bigger slice of the company's overall revenue.
 
In its third-quarter results released today, Publicis Groupe missed expectations for organic growth, yet claimed the fact 42% of its overall revenue came from digital operations (a nine per cent increase on the same period last year) was a testament to the company's "vitality".
 
However, a failed merger with fellow "big four agency" Omnicom earlier this year has hurt. Publicis has its sales forecast after missing out on revenue estimates.
 
Overall sales growth stood at one per cent for the quarter. In response, Publicis has adjusted its full-year organic sales projection to 1.5 per cent - a big drop from the four per cent predicted in February.
 
The company's share price has drooped in early morning trading, and is currently down around two per cent.
 
Maurice Levy, chairman and CEO of Publicis Groupe, said the company's clients would be confronter with a "shock wave of the digital transformation on their business models".
 
In a statement he said:
 
Organic growth has slightly picked up compared to the second quarter of 2014 but does not match our expectations.
 
There are a number of factors behind this, mainly the fact that management was too focused on other plans and not enough on the short-term performance and growth.
 
We are at the end of this cycle and very confident in the future. Very important decisions have been made including management teams and organization.
There are much positive news that testify to the vitality of the Group and are very encouraging. Starting with digital, which now accounts for 42% of our revenue and is growing by more than 9%, as well as the great victory of the Samsung competition.
 
We are ready to provide them with the innovative services that will drive them into the future.
 

Homes for sale
October 23, 2014, 10:01am

The number of mortgages approved by banks fell 10 per cent in September compared with a year ago, figures published by the British Bankers' Association showed.

The fall came after "cooling measures" introduced by the Bank of England, which make prospective borrowers undergo "stress tests" to figure out whether they can afford a loan, came into effect in April.

However, gross mortgage borrowing hit £10.6bn during the month, seven per cent higher than during the same month last year. 

More encouragingly credit card borrowing, which economists have pointed out is disproportionately high in the UK, fell - albeit by a relatively small £300m. Similarly, personal deposits rose £2.7bn, suggesting a move away from credit-fuelled spending. Net borrowing by businesses fell £1.8bn during the month.

Richard Woolhouse, the BBA's chief economist, said: 

A year ago there were many of us who were concerned by the heady pace of property price rises. “Today’s figures suggest we are now experiencing a steadier housing market and that’s no bad thing.
October 23, 2014, 9:59am

The Conservative party's Ukip woes continue, with a new ComRes survey showing Nigel Farage's eurosceptic party set to win the Rochester by-election triggered by the defection of Tory MP Mark Reckless.

The survey showed Ukip on 43 per cent with the Tories trailing on 30 per cent and Labour on a dismal 21 per cent. The Lib Dems could be in danger of losing their deposit polling a paltry three per cent.

The poll revealed 40 per cent of those who voted for the Conservatives at the 2010 general election planned to switch parties on polling day. Two weeks ago, Douglas Carswell became Ukip's first elected MP, winning by a landslide capturing 60 per cent of the vote.

The stakes are higher than usual for a by-election with David Cameron's party flooding the Rochester constituency with activists, MPs and cabinet ministers. The Tories have increasingly been talking up the prospect of tough new measures to crack down on EU migration to counter the Ukip threat.

However, the out-going President of the European Commission José Manuel Barroso poored cold water on the suggestion on Sunday saying measures to halt EU migration would be illegal.

Chairman of the Conservative party Grant Shapps responded to Barroso on these pages saying  "if the British people want greater control over our borders and a say on Europe, that is what our Prime Minister will fight for. No ifs. No buts".
 

Tesco
October 23, 2014, 9:30am
We knew it was bleak for Tesco, we were just waiting to put a figure to the despair. 
 
Now we know: the profit overstatement was understated by £13m (the final figure was £263m) and a 91.9 per cent plunge in pre-tax profits to £112 million for the first half of the year. The results are so bad that chairman Sir Richard Broadbent has stepped down.
 
Shares dropped as far as 5.5 per cent in early trading and were down 5.2 per cent at the time of writing.
 
It has been a turbulent few years for the supermarket giant. Once, Tesco seemed to have the world in its aisles, with stores as far-flung as Japan and the US.
 
But bit by bit, the retailer's empire has begun to crumble. 2014 became a year of profit warnings and high drama, culminating in a baptism of fire for new boss Dave Lewis, who only started on 1 September.
 
Barely three weeks after his first day, the company suspended several senior staff members after it discovered a £250m black hole in its profit forecast. 
 
What followed was mayhem: Blackrock, a major investor, slashed its stake, while ratings agencies put the retailer on negative watch, just weeks after Standard and Poor's had cut its rating to "BBB" from "BBB+". There was even talk of executives being hauled before MPs. 
 
Here, charted, is the decline of a giant.
 
Pinch and zoom to see the detail on mobile.
 
 
Tesco has a long way to go to arrest its fall from grace. Jon Copestake, retail analyst at The Economist Intelligence Unit, saw only one positive:
 
The bad news doesn't seem to have an end at present.
 
Tesco's like for like sales fall also comes as the firm sits bottom of a customer satisfaction survey, despite an £800m investment in better stores and services by Philip Clarke, Lewis's successor.
 
To top things off Lewis will have to face the future without the Chairman, Sir Richard Broadbent, who is stepping down in light of the accounting scandal.
 
If there is a silver lining for Tesco it is that Lewis will no doubt now have carte blanche in engineering a turnaround. As an outsider he comes in unencumbered by the firms previous mindset and has a clean slate to work from with the blame for the current malaise firmly directed at Lewis's predecessors.
 
Debenhams
October 23, 2014, 8:28am
Debenhams' share price opened lower this morning, after the retailer revealed a 20.6 per cent fall in  pre-tax profit for the last year. 
 
Over the 12 months to August 30, the department store chain saw underlying pre-tax profit drop to £110.3m, in line with expectations, while reported pre-tax profit fell 23.9 per cent to £105.8m. 
 
Group like-for-likes rose one per cent, but gross margins fell 0.6 per cent over the year, although margins began to recover during the second half, rising 0.1 per cent. 
 
Gross transaction value was up 1.7 per cent to £2.82bn and net debt has improved by just over £10m to £361.5m. 
 
Earnings per share fell 19.6 per cent to 7.4p. 
 
On the back of this news, Debenhams' share price fell 0.7 per cent in early trading. 
 
Management of the department store, which has been struggling for a few years and has become notorious as a serial discounter, said “good progress” had been made in its strategic progress, a major part of which is addressing the extent to which it goes on promotion. 
 
Debenhams noted that as a result of this, it had seen a 10.6 per cent increase in full price sell through of its own brand. More conservative sales targets and tighter buying levels – both of which had also presented problems in the past – had led to a 5.3 per cent reduction in like-for-like closing stock. 
 
It also highlighted “encouraging early signs” from trials of new concessions including Sports Direct (which owns 11 per cent of Debenhams), Costa, Monsoon and Mothercare. 
 
Chief executive Michael Sharp said:
 
After the challenges we faced in the first half, everyone in the business has been focused on addressing the issues we identified and on delivering on the priorities we set out in April to deliver long-term sustainable growth.  Our performance in the second half reflects this with operating profit up on the previous year.
 
We achieved higher full price sales and fewer days on promotion as a result of greater clarity on our promotional calendar resulting in an improved gross margin.  We have also made good progress on our work to drive better returns from our space.  Developing a more convenient and competitive online fulfilment offer has been a key priority and we enter this year's peak trading period with a much-improved range of delivery options.  We expect further benefits to accrue from these priorities going forward.
 
However, Sharp said he was still cautious about future trading because consumers were yet to see any benefit from the economic improvements trickle through to their purses, saying the team would therefore “plan prudently”. 
 
He added: “Whilst this has been a challenging year for Debenhams, the brand is strong and our improved second half performance gives us confidence that we are ready for the key Christmas period and can deliver sustainable growth over the longer term."
Foxtons
October 23, 2014, 8:05am

What a difference a year makes. Just over a year after its massively oversubscribed IPO, shares in Foxtons have plummeted more than 16 per cent after it issued a profit warning saying "constrained" growth in London's housing market is likely to hit volumes in its second half.

The upmarket estate agent, known for its trendy, bar-style stores, posted revenue of £39.9m for the three months to the end of September, down from £41.1m during the same period the year before, while property sales commissions fell 7.8 per cent to £16.4m from £17.8m the year before, and lettings revenue remained flat at £21.9m.

The company said a combination of economic uncertainty in the UK and Europe, tighter mortgage lending conditions and "mismatches between the price expectations of buyers and sellers" all compounded its problems, adding that it now expects adjusted earnings before interest, tax, depreciation and amortisation to fall below its original forecast of £49.6m.

Nic Budden, the estate agent's chief executive, said it will press on with its "clear strategy, centralised business model and steady roll-out programme".

Foxtons remains highly profitable, cash generative and debt free, and therefore well positioned to deliver further cash returns to shareholders, building on the £28.1m of ordinary and special dividends paid since our IPO.

October 23, 2014, 7:23am

It has been a tough few weeks for Tesco, but just how tough was revealed in first-half results posted this morning, which showed statutory profit before tax, which includes one-off items, collapsed by 91.9 per cent to £122m in the 26 weeks ended 23 August 2014.

Shares dropped 5.5 per cent in early trading as Sir Richard Broadbent, Tesco's chairman, announced he will step down, while the embattled supermarket admitted an independent investigation by Deloitte had found it had understated its £250m profit "overstatement" to the tune of £13m: the final figure came in at £263m.

The accounting error concerned Tesco's method of booking payments from deals with food suppliers early while at the same time pushing back the recognition of costs.

Timeline of a retail catastrophe: how Tesco's last four weeks have unfolded

Like-for-like sales excluding VAT and petrol in the UK fell by 5.5 per cent in the second quarter. The string of bad news comes only days after latest industry data showed Tesco's sales falling at the fastest rate in the sector. 

If anyone was in doubt the FTSE company is facing serious challenges, Tesco has abandoned its outlook for profits in 2014 due to "a number of uncertainties". Tesco warned full-year profitability could be "further impacted" by its woes.

Broadbent, who took control of the board in 2011, spoke of "profound regret".

The issues that have come to light over recent weeks are a matter of profound regret.  We have acted quickly to clarify the financial performance of the company.  A new management team is in place to address the root causes of the mis-statement and to develop and implement the actions that will build the company's future.  I am confident that the new chief executive and chief financial officer will move rapidly and effectively in this respect.
 
I will begin now to prepare the ground to ensure an orderly process for my own succession at that time.  My decision reflects the important principle of accountability on behalf of the Board and will support the company to draw a line under the past as it enters the next phase of its development
 

Tesco chief executive Dave Lewis, who has been in the job just 53 days, added:

Our business is operating in challenging times.  Trading conditions are tough and our underlying profitability is under pressure.  We do however face these challenges from a position of market strength and I have been heartened by the team's welcome and their determination to stay focused on doing the very best for our customers. 

Lewis said this morning there was no evidence that the grocer's massive profit overstatement was done "for personal gain".

However, current Tesco bosses aren't the only ones who are starting the day with bad news. Former Tesco CEO Philip Clarke and finance director Laurie McIlwee will not be receiving payoffs due to them until the end of an investigation by the Financial Conduct Authority (FCA).

October 23, 2014, 7:10am

Worries surrounding the failure of a number of European banks in stress tests sent markets lower yesterday, reversing early gains.

With today's economic data out of Europe likely to show further manufacturing weakness, markets are expected to edge lower again this morning, confirming worries about the sluggishness of the Eurozone.

In the UK, retail sales figures for Septemeber are expected to show a dip in consumer spending due to unseasonably warm weather which will worry investors ahead of the all-important Christmas season.

All eyes, of course, are on Tesco this morning and what effect its latest results and profit overstatement update will have on the market, particularly rival supermarkets.

Corporate news

Tesco's profit overstatement is worse than expected, coming in at £263m. Chairman Richard Broadbent is resigning in the wake of the scandal. The supermarket's underlying profits before tax for the first half of the year fell 46.6 per cent to £783m, while like-for-like sales were down 4.6 per cent.

Unilever reported underlying growth in sales of 3.2 per cent for the nine months to 30 September with a boost from emerging markets. Turnover declined however, down 4.3 per cent to €36.3bn.

Estate agent Foxtons said the London property market's sharp and recent slowdown had a negative impact on the quarter from June to September. Turnover dropped to £39.9m from £41.1m the previous year.

Debenhams increased like-for-like sales by one per cent for the year to 30 August, however, pre-tax profits fell  20 per cent to £110.3m, in line with expectations.

Data in focus

  • 09:30am: European manufacturing PMI
  • 09:30am: European services PMI
  • 09.00am: UK retail sales
  • 01:30pm: US initial jobless claims
  • 02.45pm: European consumer confidence
  • 02:45pm: US manufacturing PMI

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