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In this week’s Commercial Awareness update, we discuss Theresa May's call for a snap general election in June, Weetabix being swallowed up by US company Post Holdings, Toshiba’s risk of bankruptcy and London working hours.
1. A snap election
This morning UK Prime Minister Theresa May announced plans to call a snap general election on 8th June. The PM has cited the need for stability in the country, and more importantly Westminster, during the Brexit negotiations as the key reason for her decision. The next general election was due to take place in 2020, so May will need Parliament’s authorisation to call this election early. The vote will take place in the House of Commons tomorrow, and will require two thirds of MPs to vote in favour to pass, which is a likely outcome with all opposition party leaders welcoming the move.
Theresa May became Prime Minister last summer without a General Election, following the resignation of David Cameron in the wake of the EU referendum result. Many have called for May to take this step and secure the public’s support for her premiership, and May is keen to have a mandate to carry out her strategy for Brexit without the uncertainty and divisions within Westminster. In current polling, the Conservatives are 21 points ahead of Labour, with UKIP and the Liberal Democrats neck and neck in third place. This is one of the biggest leads a governing party has enjoyed over the opposition, and must give May confidence ahead of June.
In the hours after the historic announcement the FTSE 100 dipped, but the pound rose to a ten week high against the dollar. There’s likely to be turbulence in the markets during the next week, so don’t forget to keep checking for the latest updates.
Questions to ask yourself… Why do you think Theresa May’s announcement has boosted the value of the pound? Is this general election in the best interest of the country?
2. Market watch
The FTSE 100 fell towards the backend of last week as banking shares dipped, there was decreased activity in the run up to Easter, and there were poor performances from supermarkets. US banks like JP Morgan reported solid results, but this was unable to give the markets confidence on this side of the Atlantic. HSBC’s shares fell 1.7% and RBS lost 2.3% on Thursday. Turbulence in the markets recently has largely been caused by geo-political factors and this is likely to continue this week. Growing tension between North Korea and America, and the missile strikes in Syria, have caused nervousness in the markets, leading to many speculators favouring safer investments. America’s zero-tolerance policy towards North Korea’s nuclear weapons programme and their increased presence in the Korean Peninsula is creating this increased tension.
Tesco shares fall despite operating profit gains
Tesco’s share price fell 6% last week, despite reporting a sales growth for the first time since 2009/10. In the year to the end of February, sales grew by 4.3% to £49.9 billion, while operating profit increased from £985 to £1.28 billion (a 29.9% increase). These figures suggest Tesco is on the right track after years of poor performance, but it’s pre-tax profits fell 28.2% to £145 million. The dip in profits was largely caused by a £129 million fine over false accounting from the Serious Fraud Office - relating to a £240 million black hole in Tesco’s balance sheets in 2014. However, Chief Executive Dave Lewis’ turnaround plan is taking effect and the announcement included some encouraging figures of recent cost savings.
Weetabix sold to US company
UK cereal brand Weetabix is set to be acquired by US company Post Holdings in a deal worth £1.4 billion. Weetabix was put up for sale in January by China’s Bright Food, after they took a 60% stake in 2012. Bright Food aimed to capitalise on a trend in China to eat more western food, but it was unable to gain a significant enough market share. Weetabix also includes the Alpen, Ready Brek and Weetos brands, and employs 1,800 people globally. It’s the largest producer of breakfast cereal in the UK and its leading factory in Kettering produces three billion Weetabix biscuits each year. Due to the weakness of the pound – especially compared to the dollar – it’s not surprising an American company would be interested in adding Weetabix into their portfolio.
Questions to ask yourself… Are there positive signs Tesco is turning its fortunes around? What has a bigger impact on markets – major corporations announcing results or geopolitical issues?
3. Toshiba’s risk of bankruptcy
Last week Japanese conglomerate Toshiba announced it is struggling with a significant financial crisis, which has put “substantial doubt” on its ability stay in business. The electronics firm has suggested losses for last financial year could hit $9 billion and in December their debt had risen to $13 billion. The problems for Toshiba have largely stemmed from its involvement in the nuclear power plant business. The company’s US subsidiary Westinghouse has filed for bankruptcy after they went hugely over budget with construction work at new nuclear power station projects in America.
Toshiba is aiming to strengthen its position by selling off other assets, including its NAND flash memory division. They are the second largest NAND flash memory producer in the world and this division has an estimated value of $18 billion. It’s reported that Singapore company Broadcom has offered the largest bid, but Facebook and Google could be interested in a stake in the division. Any agreement is going to be very complex and it’s likely to be sometime before a final deal is reached.
Commentators believe the iconic Japanese business, with more than 100,000 employees in the country, is too important for Japan to let collapse. The Japanese government has a history of saving major companies who fall into problematic times.
Questions to ask yourself… Is this a worrying sign for the global nuclear power industry? Should Toshiba focus back on its core offering to turn things around?
4. Londoners work 100 hours a year more
New data has revealed Londoners spend an average of 100 extra hours at work each year compared to the rest of the UK. In a report by the Office of National Statistics (ONS), they also found the average working week in London is the longest since the 2008 financial crash. The figures were attributed to London’s young population and the concentration of “higher-skilled” jobs, which usually demand longer hours. The average working week across the UK is 31 hours compared to 33 in London, but this includes part-time workers who bring the average down. Looking at just full-time workers, the average Londoner works 38 hours per week.
Many have highlighted a link between working longer hours and worsening physical and mental health in the capital, however UK working hours are still significantly shorter than those in Turkey, New Zealand and the USA.
Questions to ask yourself… How important is a work-life balance to producing good quality work?