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Seven days: 4 August 2017

Our take on the biggest business stories of the past week
August 3, 2017

All change at AA

The AA (AA.) is in search of new leadership. The motor insurer announced executive chairman Bob McKenzie had been removed from the board, as a director and an employee for gross misconduct. Senior independent director John Leach has been appointed chairman, while non-executive director Simon Breakwell has become acting chief executive with immediate effect. The group’s trading performance during the first half didn’t make for much better reading. Membership numbers were up marginally to 3,327,000, while it also incurred a one-off cost relating to a profit sharing arrangement with a third-party underwriter. AA now expects its full-year performance to be in line with the prior year.

We’re in demand

Exports buoyed in July

The UK’s factories ramped up production in July to meet the strongest surge in export orders for more than seven years. The Markit/CIPS UK Manufacturing purchasing managers' index delivered a reading of 55.1 last month, up from 54.2 in June and higher than expected. A reading above 50 indicates growth. It represented the second-strongest rate in the history of the survey as sterling’s depreciation has boosted overseas demand for UK-made goods and services. The report also said pricing pressures eased for manufacturers, with input prices rising at their weakest rate in over a year.

Bye bye walkie talkie

Land Secs sells share

Following British Land’s (BLND) disposal of its share in the Leadenhall Building, Land Securities (LAND) has decided to sell one of its high-profile investments. It will sell its 50 per cent stake in 20 Fenchurch Street (the walkie talkie building) to Hong Kong group LKK Health Products for £641.3m. LKK is also buying the other half from Canary Wharf. The sale price equates to an exit yield of 3.4 per cent – an exceptionally good price. Shareholders will receive £475m of the proceeds through a 60p a share dividend, accompanied by a share consolidation subject to shareholder approval.

Kosmos on horizon

London listing planned

Kosmos Energy is set to become the biggest oil and gas company to list on the London main market since the commodities’ price crash three years ago. The Dallas-based group plans to secure a dual-listing, in addition to its existing membership of the New York Stock Exchange. Already with a $2.5bn market capitalisation, management wants to expand the group’s shareholder base outside the US, where onshore shale oil and gas exploration has become more popular with investors. Kosmos is focused on frontier and emerging areas along the Atlantic margin.

Diesel under pressure

Motor upgrades planned

As European regulators continue to turn the screw on governments to clean up air pollution, German carmakers including Volkswagen and BMW have proposed upgrading diesel vehicles to reduce emissions. This follows allegations first published in Der Spiegel that manufacturers such as Volkswagen, Porsche and Audi colluded on technology, including systems for dealing with emissions from diesel cars. In February, the EU issued a warning to Germany and four other member states over their failure to address repeated breaches of air pollution limits for nitrogen oxide.

 

Red alert for corporates

Distress on the rise

Begbies Traynor’s (BEG) quarterly red flag alert report, which monitors the financial health of UK companies, recorded its largest annual increase in financial distress since 2014. The research showed 329,834 UK companies were experiencing significant financial distress at the end of the second quarter, up a quarter on the same time in 2016. Shares in the insolvency practitioner, which would in theory benefit from an uptick in corporate bankruptcies, have risen 18 per cent during the last month.  

 

HS2 in sight

Contracts signed

The UK’s multi-billion pound HS2 rail project is coming into view. This week saw the formal signing of contracts to deliver the bridges, tunnels and earthworks for the first phase of the link between London and Birmingham in 2026. The companies involved – including Carillion (CLLN), Kier (KIE) and Balfour Beatty (BBY) – will support 16,000 jobs across the UK supply chain, in the biggest investment in UK transport infrastructure since the first motorways were built in the late 1950s. All the contracts cover two stages, with first construction starting in 2018-19.

 

Chart of the week: Luxury price inflation accelerates

Luxury price inflation has been almost three times that of average consumer prices during the 12 months to May this year, according to data from private bank Coutts. 

The Coutts Luxury Price index rose 6.2 per cent during the period, compared with a 2.9 per cent increase in the consumer prices index. 

A major driver in this increase was the sharp fall in the value of sterling, which pushed up the cost of luxuries such as holidays and overseas travel. 

The product that witnessed the highest rate of inflation was alcohol (see chart), which increased by an average 22 per cent in price.