In this week's commercial awareness update we discuss India losing their economy title, Britain's coal achievement, Jamie Oliver's empire, Almac's record turnover and Neil Woodford's investor decision.
India loses fastest growing economy title
India is no longer the fastest growing economy in the world after the economy grew much slower than expected in the last quarter. The Indian economy grew by 5.8% in the first quarter of 2019, compared to the 6.6% growth in Q4 2018 and also the 6.4% the Chinese economy expanded in the same timeframe. This is the slowest growth rate for 17 quarters and has been caused by a slowdown in domestic demand (the essential driver of growth in the economy) and a decline in investment, which fell to 3.6% from 10.6% last quarter.
Last month, Narendra Modi’s BJP were voted back to power and are likely to be introducing measures to stimulate the economy. The Reserve Bank of India is likely to cut interest rates and there is likely to be a drive to increase employment. Despite the strong growth over the past years, recently released figures show India had an unemployment rate of 6.1% in the 2017/18 financial year and not enough jobs are being created - in comparison, the UK has an unemployment rate of 3.8%.
Questions to ask yourself.. Is it good to have an economy which heavily relies on the domestic market? How can India lower unemployment?
Britain’s gone coal-turkey
The UK has reached a new milestone by not using coal for a fortnight to generate electricity - the longest period since the 1880s. In addition, the British record for solar power was broken last month demonstrating that the UK is taking its plans to reduce carbon emissions seriously. In 2018, coal made up just 5% of Britain’s electricity, a substantial decline from 40% usage in 2012. Over a two week period, Britain’s energy source came 40% from gas, 20% nuclear energy, 13% wind, with the rest coming from alternative sources.
Fintan Slye, the director of the National Grid Electricity System Operator (ESO) has said that this would become a “new normal”, particularly with the government’s pledge to phase out all of the UK’s coal fired plants by 2025. However, the government has recently come under pressure to accelerate the transition away from fossil fuels after parliament declared a climate emergency last month. Business leaders from companies including BT, Iceland and John Lewis have signed a letter to the Prime Minister urging the government to take immediate action to put in legislation to meet the 2050 target.
Ones to watch
Jamie Oliver’s empire has collapsed as his restaurant chain fell into administration last month. Around 1,000 staff are expected to lose their jobs as all but 3 of the 25 UK restaurants have closed. The restaurant group, which includes Jamie’s Italian, Barbecoa and Fifteen, have only 3 restaurants remaining open, which will continue trading in the short term at Gatwick Airport. The celebrity chef injected £4m cash into the business earlier in the year to support fundraising, however no suitable investment was upcoming. Last year, the sales at Jamie’s Italian plummeted by 11% to £101m, closing 12 restaurants and making around 600 staff redundant.
The restaurant chain is yet another victim in the decline of the high street, with other similar chains including Prezzo and Carluccio’s closing stores and Patisserie Valerie also falling into administration. In March of this year, Britain had 5,785 restaurants which was 1.1% fewer than the same month in the year previous.
Pharmaceutical company, based in Craigavon, Northen Ireland, has made a record turnover of £548m with a pre-tax profit of £27m. Almac has stated it has been “another strong year” with staff numbers rising by 8% during 2018 to just under 4,800. Despite profits being down from the £33m achieved in 2017, it has reflected a high level of investment spending. Almac is considered to be one of Northern Ireland’s most successful firms, however in 2017, Almac bought a firm in Dundalk and Athlone in the Republic of Ireland as a direct result of Brexit. As one of the firm’s major lines of business is making products and conducting tests for large drug firms, it asserted to House of Commons that it needed an EU presence for regulatory reasons. The firm currently has large operations in England and the US as well as in Northern Ireland and the Republic of Ireland.
Famous fund manager Neil Woodford has taken the decision to block investors from withdrawing capital from one of his flagship funds after too many investors were asking for their money to be taken out of the fund. After the losses sustained in the equity income fund over the last two years, there had been more than £187 million worth of redemptions in one month. A recent request by Kent county council to withdraw £250 million led to suspensions of transactions - this means no investor can withdraw their stock, including the county council. This step has been taken in the interest of investors, as the extra time gives Woodford’s firm to sell their investments in a timeframe to offer value for the investors.
Neil Woodford built a reputation over many years at Invesco Perpetual as an excellent stock-picker, but hasn’t had everything his own way since starting something himself five years ago. Mainly focused on retail customers, a number of organisations put significant investment into the fund based on Woodford’s reputation - the equity income fund once managed £10.2 billion of assets. After a strong first year, the stock has lost investors money across the last two years. After significant withdrawal, it’s believed that it only manages £3.7 billion. Many believe the fund has performed badly because of the investment in smaller UK businesses, which have felt the impact of Brexit over the last two years.
The big problem for Woodford now is that many invested in the fund simply due to his reputation as a savvy stock-picker which is now very publically being tarnished. If he can’t raise more investment into his fund, he’ll be forced to sell many of his positions at a loss.
Questions to ask yourself... What can high street restaurants do to encourage more customers? Does anyone have the answer when it comes to investing?