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In this week’s Commercial Awareness update we discuss the housing market for young people, Uber’s 2017 results, Standard Life Aberdeen’s £109 billion loss, the Oxfam scandal and the cost of showing live Premier League matches.
Home ownership decline amongst young adults
New research from the Institute for Fiscal Studies has found that home-ownership amongst young adults has “collapsed”. Only 27% of people aged between 25 and 34 on middle incomes (£22,200 to £30,000 after tax) are on the property ladder, compared to 65% in the mid-1990s. The biggest fall in ownership occured in the South East. The reason for this is largely due to a disparity between house price growth and wage growth, with the former growing around seven times faster. House prices are on average 152% higher, while wages are only up 22% since the mid-1990s - experts suggest this points to the supply of new housing not keeping up with demand. A separate report last week found around 425,000 homes are currently set to be built, but not yet started despite having planning permission. It’s not just lack of supply which is causing the problem, many more wealthy individuals are investing in multiple properties, therefore increasing demand.
It’s not all bad news for young people aiming to get on the property ladder, with figures showing there were more first time buyers (365,000) last year than any year since 2006. Commentators also suggest the solution could lie in reforming the renting sector for young people. Putting controls on rental prices and cutting fees will give middle earning young people enough disposable income to put into savings and pensions.
Questions to ask yourself… Do we have a shortage of skilled labour in the construction industry? What will make housing more affordable for young people?
Companies to Watch
Ride-hailing app Uber announced last week they had recorded an annual loss of £3.3 billion for 2017, a 65% increase compared to the previous year. Revenues did surge 85% to £27 billion, but this wasn’t able to rise as quickly as their costs. Despite the losses, the firm's leadership believe they can become profitable this year, before they plan to float on the markets in 2019. Despite the poor results, there are some promising signs, especially in the fourth quarter. Their losses in that period weren’t as significant as in 2016, suggesting they are getting better at cost control.
The last two years have been challenging for Uber and in London, one of their most lucrative markets, their appeal against Transport for London decision not to renew its licence will be heard in the spring. This ruling will be vital to their continuing success in the UK.
Standard Life Aberdeen
Last week, Lloyds Banking Group announced it would be withdrawing their £109 billion worth of assets out of Standard Life Aberdeen. This was a major blow for the the asset management firm, who’ve now lost their biggest client. When Standard Life and Aberdeen Asset Management merger last year, Lloyds Banking had six months to make a decision on the assets they had under management. On a statement on Thursday, they announced they had terminated the agreement. They have held their assets in Aberdeen Asset Management since 2014, but once the merger with Standard Life happened they have been directly competing with Lloyds owned Scottish Widows - they both work in pensions and wealth management.
As a result of this announcement, Standard Life Aberdeen’s share price dropped 9%, before recovering slightly for a 4% loss across the week.
The sexual misconduct scandal at Oxfam is taking its toll on donations, as the charity sector braces for a backlash from major companies and wealthy individuals. Oxfam confirmed that 1,270 people had cancelled their direct debit payments last weekend, after allegations that Oxfam staff exploited people in Haiti and other countries. Oxfam usually lose 600 donations per month, so losing over double that in a three day period is a major worry for the organisation.
There are warnings from analysts that this scandal and the potential for more revelations to come could have a lasting impact on the sector, with wealthy individuals becoming more reluctant to donate their money before strict checks on the activity of the charity. There are calls for further transparency across the industry to rebuild trust in the good work big charities do across the world.
Furniture and clothing company Laura Ashley announced a profit warning and cancelled dividend payments after disappointing pre-Christmas sales. This is the third profit warning they’ve issued in the last 12 months, and brings fresh doubt over their future. In the last six months of 2017, pre-tax profits dropped 45% to £4.3 million. Revenues only dipped by 7.7% in the same period, but the company blames the weaker pound for the cuts to profits. Shares fell 26% on the news and the forecast for the future doesn’t look promising, as they expect to fall below market expectations for the next six months. The firm is trying to cut costs to stay competitive, but they also might be helped by the strengthening pound against the dollar over the last couple of months.
Questions to ask yourself... How can Uber better manage their costs? What other problems could Oxfam face after these allegations?
Football TV rights
The two main broadcasters Sky and BT Sport will continue their dominance of live televised Premier League football, after paying a combined £4.464 billion to the clubs for packages between 2019 and 2022. Sky’s share price rose on the news after investors were pleased with the deal negotiated - Sky will pay £3.579 billion over the three year period, compared to the £4.1 billion they paid for very similar packages between 2016 and 2019. Despite being down on the previous deal, the Premier League is still the world’s richest football league. Furthermore, with the potential for streaming services, like Amazon Prime, to enter the market, the competition could heat up over the coming years.
Question to ask yourself... Why has the Premier League not been able to charge the same amount for TV rights in the latest deal?