Pressure piled on
Reports of tightening regulation around consumer credit products have scarcely left the pages of the IC during recent months. Now the government has announced plans to ban surcharges on credit and debit card payments from January. Customers spent £473m on such charges during 2010 alone, according to estimates by the Treasury. Take-away food apps have among the highest charges, with companies including Just Eat (JE.) and Hungry House adding 50p to the bill for card payments, although this is sometimes paid by the restaurant. The change follows a European Union directive to ban surcharges on Visa and Mastercard payments, although the government plans to extend this to PayPal and American Express.
HS2 boost
Contracts awarded
Construction groups, including Costain (COST), Kier (KIE) and Carillion (CLLN), received a boost this week after the government announced they had been selected to complete work on the HS2 high-speed rail line between London and Birmingham. The news was particularly welcome for the latter, whose share price had fallen by a third in the previous week when it issued a profit warning and announced plans to suspend the dividend. Its joint venture with French civil engineering group Eiffage secured two design and build contracts worth around £1.3bn.
Strategic delivery
Improved pension offer
Royal Mail (RMG) may be close to removing one of the thorns from its side. Following a long-running pensions dispute with workers unions, the group has put forward an improved offer to members of its defined-benefit pension scheme, which will close to future accrual in March. Management has proposed offering members a choice between a defined-benefit cash balance scheme and a defined-contribution scheme. Letter volumes continued to decline, down 6 per cent during the three months to June. However, an increase in parcel sales meant overall revenue inched up 1 per cent.
GSK surprise
Horlicks sale
We’ve long noted GlaxoSmithKline’s (GSK) shift from pharmaceutical company to more of a manufacturer of consumer healthcare goods, with the latter producing a considerable amount of like-for-like earnings growth in recent years. That’s why the group’s latest update makes for odd reading. The company intends to sell its Horlicks brand in the UK and is proposing to close the associated manufacturing site in Slough, where UK product is made. In addition, GSK intends to sell the MaxiNutrition brand in the UK and is exploring options to divest some other smaller non-core nutrition brands. Conversely, the company plans to invest more than £140m at several of its sites between now and 2020 to support the expansion of manufacturing for respiratory and HIV medicines.
Aviva streamlines
Lossmaking sale
Income Tip of the Year Aviva (AV.) has announced plans to sell Friends Provident International – which offers life assurance, pensions and investment products in Asia, the Middle East and Europe – to a subsidiary of International Financial Group for £340m. Management concluded that the business was not central to the life assurer’s strategy and will book a £130m loss on the sale. However, it will provide a £100m boost to its solvency capital levels and will be beneficial to the dividend, management said.
Trump stumbles
Healthcare replacement dropped
Donald Trump faces another obstacle to his plans to overhaul the US healthcare system, after Republicans abandoned plans to replace Obamacare. Instead, the administration will only repeal the system put in place in 2016. Senate majority leader Mitch McConnell said he would repeal Obamacare, but with a two-year delay, which they hope will give them time to come up with a replacement. It’s certainly a high-risk strategy that could leave a void once occupied by Obamacare.
Food to go
Reckitt disposal
Reckitt Benckiser (RB.) is continuing with its plans to become a global force in the consumer health and hygiene markets. It plans to sell its food business, which includes French’s mustard and Frank’s RedHot sauce, to McCormick & Company for $4.2bn (£3.2bn). The move follows the acquisition of Mead Johnson Nutrition earlier this year. The company will use the proceeds of the sale to pay down some of its debt, after it completes during the third quarter of this year.
Chart of the week
Expectations that the European Central Bank’s (ECB) quantitative easing programme could soon end abruptly were subdued by weaker US economic data and dovish commends from the Fed this week. German 10-year government bond yields fell back from their 14-month high (see chart), ahead of the central bank’s meeting. Yields have been trading at heightened levels since ECB president Mario Draghi made bullish remarks about the health of the Eurozone economy at the end of June. The ECB’s quantitative easing scheme expires at the end of the year.
