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Seven Days: 10 July 2020

A round-up of the biggest business stories of the past week
July 9, 2020

Summer statement

Stimulus pledges

As explored in our news pages this week, the UK chancellor has delivered a summer economic update – outlining how the government plans to drive job creation and retention as the existing furlough scheme winds down through to the end of October. In the same breath, Rishi Sunak unveiled a widely-anticipated shift in the stamp-duty threshold – meaning that there is now no stamp duty payable on property transactions below £500,000. The chancellor has also slashed VAT for the next six months on food, accommodation and attractions, and is offering a discount on meals at restaurants and pubs during August.

 

Auditor fined

Conviviality aftermath

The Financial Reporting Council (FRC) has fined Grant Thornton over audit failures pertaining to the collapsed drinks group Conviviality. The fine – which was discounted from £3m to £1.95m due to admissions and early disposal – was issued for “firm-wide failures to ensure compliance with ethical standards and requirements between 2014 and 2017” and “the loss of independence” in relation to the audit of Conviviality. Grant Thornton has also agreed to non-financial sanctions, including a “severe reprimand”, a declaration that its audit did not comply with requirements and measures to ensure that it improves future audits.

 

Job cuts at Reach

Ad declines

Newspaper publisher Reach (RCH) is to cut 12 per cent of its workforce amid efforts to achieve £35m in annualised cost savings. Structural change in the media sector has accelerated during the coronavirus crisis, with a decline in print circulation being counterbalanced by strong demand for online products. But a fall in advertising during the pandemic means that the group “[has] not seen commensurate increases in digital revenue”. Reach believes that a “transformation” is necessary to tackle the challenges it faces, and to establish “a strong platform” to boost online customer registrations.

 

Lloyds CEO to go

Departing next June

Lloyds Banking’s (LLOY) chief executive António Horta-Osório will step down in June next year after a decade in the post. A replacement has yet to be named. As part of the boardroom shake-up, Robin Budenberg – currently chairman of private US banking company Centerview Partners – will succeed retiring chairman Lord Norman Blackwell in early 2021. Mr Horta-Osório took the helm in the aftermath of the global financial crisis. We recently questioned whether Lloyds was heading for an “economic reality check”, with overly optimistic projections for the future.

 

Pub spend ramps up

Reopening hospitality

According to new Barclaycard data, spend in pubs and bars grew by almost 300 per cent over the weekend of 4 and 5 July (compared with the previous weekend). This reflected the reopening of swathes of England’s hospitality sector after a prolonged period of closure. Contactless transactions climbed by 137 per cent, signalling that this technology continues to be the preferred method of payment. Across the whole of the hospitality, leisure and entertainment sectors, Barclaycard Payments saw a 19 per cent rise in the total number of transactions.

Huawei ‘phase out’

5G networks

British prime minister Boris Johnson is expected to outline plans this month to “phase out” Chinese firm Huawei from fifth-generation (5G) phone networks, according to a Financial Times report. This followed warnings that US sanctions had affected Huawei’s ability to supply the UK, reportedly leading to concerns that Huawei might use other types of technology, posing more security issues. A complete ban on Huawei equipment would drive telecoms companies to look elsewhere for the kit needed to build out 5G infrastructure.

 

Burford’s duo listing

Looks to US

Litigation financing group Burford Capital (BUR) has filed a registration statement with the US Securities and Exchange Commission (SEC) with a view to floating its shares on a US stock exchange on top of its current Aim-market listing. Burford does not plan to issue any new shares with this proposed US listing. Burford said that it now enters a period whereby it cannot comment on the progress of the SEC review, unless there is a development requiring a public announcement. 

 

Dividend growth was much greater than profit growth in 2019 – with dividends for the world’s top 1,200 companies rising by 8.8 per cent to £1 trillion, according to Janus Henderson’s latest ‘Global Dividend Cover’ report. 

By comparison, profits edged up by 1.1 per cent to £2.15 trillion. But this year, dividends look set to fall sharply – with a best-case scenario of £874bn in payouts (as shown in the chart) and a worst-case scenario of £675bn. 

Dividend cover could vary between 1.9 times and 2.5 times in 2020, from 2.1 times in 2019.