In this week’s Commercial Awareness update we discuss the Iran nuclear deal, Vodafone’s European expansion, the changing energy sector, BT’s 13,000 job cuts, Vinyl making a comeback and Facebook’s dating app.
US sanctions against Iran
US President Donald Trump has said that America would pull out of the Iran nuclear deal and reimpose sanctions, which will limit US companies ability to trade with Iran. The nuclear deal was struck three years ago between Iran and six other nations which limited Iran’s nuclear programme and, in return, loosened sanctions - allowing countries to trade more freely with Iran. After the deal, there was a rush of trade activity as many companies started negotiating deals, mainly in the energy sector. However, this is now under threat with Trump working to pull America out of the deal.
The US is giving companies in America up to six months to stop their contracts with Iran and will impose fines on banks for processing transactions with the nation. Trump has also encouraged European countries to follow suit and has threatened to to cut business ties with companies that fail to cease their activity. In 2017, the EU exported £9.5 billion worth of goods and services to Iran, while they imported £9 billion - approximately 0.5% of the EU’s global trade. This isn’t a significant proportion, but the EU is working through ways to protect its trade with Iran despite American actions. French energy companies Total and Airbus are just two of the companies that could lose out if trade becomes more difficult.
Questions to ask yourself… What impact could this move have on the US economy? What are the potential negatives aspects of global trade?
Companies to Watch
Telecoms giant Vodafone has agreed on a deal to buy Liberty Global’s cable TV and broadband business, giving them a significant presence across Germany and Eastern Europe. They will pay £16 billion for the company that owns Virgin Media (though Virgin Media aren’t included in the deal), and therefore gain 54 million more customers across Europe. The agreement does include Unitymedia in Germany, which they hope will become the main competitor to Deutsche Telekom - Europe’s biggest telecom operator. They already own the biggest cable business (Kabel Deutschland), so this move represents a big investment in diversifying within existing core markets. The announcement was received well by the markets and Vodafone’s share price rose 1.2% in morning trading on Wednesday.
British Gas’s parent company Centrica say they have lost 110,000 energy supply accounts in the first four months of this year as competition in the market is stronger than ever. After losing over 1 million customers last year, this is more bad news for the biggest energy supplier in the UK. Amongst the Big Six, British Gas isn’t the only firm reporting significant numbers of customers switching, with Npower announcing they lost 120,000 accounts in the first quarter of 2018. The market has been disrupted by new companies, like Bulb, often providing customers with better value solutions.
British Gas has also recently announced a 5.5% average price hike for its gas and electricity customers, citing rising costs of energy and increasing costs of implementing government policy.
The UK’s largest telecoms company announced cuts to 13,000 jobs over the next three years. The company plans to cut £1.5 billion in costs in a wide reaching turnaround strategy. They suggest the job cuts will give them more scope to invest in full fibre and 5G networks, allowing them to enhance their offering for customers. BT has been rocked by an accounting scandal in Italy last year and they haven’t seen the expected returns from their pay-TV service. They believe they are two years away from a return to growing their profit, but this didn’t appear to be good enough for investors - their share price dropped 13% to 212p.
Questions to ask yourself… What can British Gas do to retain more accounts?
The UK high street
There was bad news for the retail sector as shopper footfall fell 4.8% in the last two months. These levels of decline were last seen during the recession in 2009, and a number of big names are facing store closures. The decline of the high street isn’t anything new, but the last couple of months has seen declining consumer spending on tech, furniture and other items, which could be a worrying sign for the economy.
Some sectors are breaking this trend, with the music industry seeing a boost in sales this year. They’ve seen a 13.6% rise this year in vinyl and CD sales compared to the previous year, with the demand for vinyl rising significantly.
Question to ask yourself… Can the traditional high street be saved?
The Future of Dating?
Social media giant Facebook said last week they would be entering the online dating market, adding a new feature to their core app. Facebook is doing something slightly different to other dating apps, connecting people interested in the same events. The feature will allow singles who have said they are attending an event to connect with each other before the event takes place. They hope this will create more meaningful interactions than other swiping based apps. Match Group - owner of Tinder and Match.com - has said it isn’t worried by the new competition and reported better-than-expected profits last quarter. However, Facebook’s announcement sent Match Group’s share price down 22%.