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In this week’s Commercial Awareness update, we discuss the illegal referendum in Catalonia, Monarch Airlines collapse, US protectionism, the future of Nike and Aldi’s declining profits.
Catalonia’s Independence Referendum
Many of you will have seen footage of the events in Catalonia on Sunday, as 850 people were injured trying to vote in an independence referendum. The movement for separation from the rest of Spain has gained significant momentum in recent years - many attribute rising unemployment and economic problems in Spain as a catalyst for this. The Catalan government already has a broad range of devolved powers, which was extended in 2006, but called an in-or-out independence referendum for Sunday. However, Spain’s constitutional court ruled it an illegal vote. Despite the ruling and the police stopping citizens voting at many polling stations, it’s believed 42% of voters turned out, with senior figures in Catalonia suggesting 90% of them voted for independence.
So, why is Spain so determined to stop an independence vote?
In very simple terms, Catalan independence would cause unrest across Spain and a hugely problematic situation for the Spanish government. As the UK has found with trying to leave the EU, it’s an incredibly complex process, which has the potential to harm both sides in the short term. Plus, Catalonia is economically very important to Spain. It’s the wealthiest region in the north-east (generating nearly 20% of the country’s GDP) and hosts much of the country’s manufacturing and finance sectors - they pay their taxes directly to Madrid, which a number of pro-independence politicians claim is then unevenly distributed across Spain. Barcelona is also the biggest port in the Mediterranean and has two of the leading business schools in the world.
Independence would also have ramifications far wider than Spain itself, especially within the European Union. The EU aims for greater unity between member states, which would be hindered by Catalan independence and would create uncertainty in central Europe. In Asia markets this morning, the Euro was trading 0.4% down, as the Catalan government is expected to claim sovereignty within a week.
Questions to ask yourself.. Should the Spanish government allow a referendum in Catalonia? What is the wider impact of this unrest on the EU?
Companies to watch
The UK’s fifth biggest airline has been placed into administration and all its flights have been cancelled, leaving 300,000 bookings unfulfilled. The Civil Aviation Authority is now working to bring home the 110,000 Monarch customers left stranded outside of the UK and will charter more than 30 aircraft. The airline had a deadline of midnight on 30th September to renew its Air Travel Organiser’s Licence (Atol) - once that passed, the airline effectively went out of business and became the biggest airline ever in the UK to cease trading. UK travel firms who sell package holidays are required to have an Atol, which protects customers who are stranded abroad if the airline stops operating. Monarch Airlines employs approximately 2,750 people, mainly in the UK.
Last week, the US authorities ruled they would impose a 220% duty on Aerospace firm Bombardier’s CSeries jets, after a dispute with Boeing. The latter complained to the US Department of Commerce suggesting the Canadian company Bombardier could undercut their prices due to subsidies from the British and Canadian governments. The dispute relates to an order placed by Delta Air Lines for Bombardier’s jets, despite many commentators suggesting Boeing doesn’t have a product which directly competes. The US has been accused of “protectionism” and acting “disproportionately”, which could have a significant impact in the UK. The wings for the jets are made in a Belfast factory and the newly imposed tariffs threaten the deal and potentially jobs - this is one of Bombardier’s largest contracts.
Nike released the first quarter results of its 2017/18 fiscal year last week, which saw profits slide 24% compared to last year. The sportswear giant recorded the same revenue compared to the previous year - $9.1 billion - but higher tax rates and unfavourable foreign exchange rates saw its profits decline. The figures did beat market predictions, but this didn’t stop the share price falling 4.5% on the announcement. There has been significant cost-cutting in the last quarter, which is the main reason for the better-than-expected results, but this isn’t a sustainable strategy. Plus, sales fell in their biggest market - the company reported a 3% drop in revenues in North America, while rivals Adidas continue to rise.
Nike is currently undergoing a major strategy change, with the aim of selling more of its products directly to the customer, rather than through retailers. Currently, 75% of the company’s sales are through third party retailers (such as Foot Locker), cutting its profit margins, but it is hoping to start selling more product online and in its stores.
In recent Commercial Awareness updates, we’ve discussed the growth of Aldi (and Lidl) as they make gains on leading supermarkets in terms of market share. However, this does come at a cost as the discounter has just announced a 17% fall in profit to £211.3 million in 2016, compared to the previous year. The firm has said the cut in profits is due to investing in new stores and its commitment to keeping prices low - it claims to be 15.2% cheaper than Asda.
Questions to ask yourself… Are protectionist policies going to be good for the US in the long term? Should Aldi be worried about declining profits?
And finally… For the Lawyers
In a special and historical ceremony today, Lady Hale was officially sworn in as the first female President of the Supreme Court, making her the most senior judge in the UK. Lady Hale, who succeeds Lord Neuberger, has been a Justice since 2009, and has long-advocated for greater diversity within the legal profession.
She was the first woman to be appointment to the Law Commission in 1984 and was the first female law lord in the House of Lords in 2004. Her new role as President of the Supreme Court been described as a “welcome move” and “an important step towards increasing diversity within the judiciary”.
Alongside Lady Hale, the new Deputy President, Lord Mance, and three other Justices of the Supreme Court were also sworn in, including Lady Justice Black. During the ceremony, the court remained open, giving the media and the public a unique insight into the courtroom. The ceremony was also live streamed on the UKSC website and will be available on YouTube shortly.
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Applying for roles or events? Here's our two top picks for this week: