Tuesday 27/02/24

1. In BUSINESS, CONSUMER & EMPLOYMENT NEWS, Japanese robots are coming to Europe, we look at whether Toyota was right to stick to hybrids, UK consumers spend and see food price inflation slow down while junior lawyers at one firm could get paid £2m in three years and Expedia aims to cut headcount by 9%
2. In REAL ESTATE NEWS, housebuilders face scrutiny and Hammerson sells a shopping centre for a discount
3. In MISCELLANEOUS NEWS, Sweden joins NATO, Microsoft does a deal with Mistral, Amex does BNPL, Wincanton has a bidding war and Homebase is up for sale again
4. AND FINALLY, I bring you some exhausting-looking dancing…

So there’s an impending robot invasion, Toyota could have been right to stick to hybrids, consumers spend, food price inflation slows right down, a law firm offers junior lawyers massive money and Expedia cuts headcount…

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The Japanese robots are coming (Financial Times, Lex) says that Japanese industrial robots are going to become more widespread in Europe as rising wages have boosted demand for them across different industries. Japan’s Fanuc is a major player in this area and it has quadrupled the size of its Spanish sales hub near Barcelona, increasing its European footprint that already comprises of ten facilities. Interestingly, demand thus far has predominantly been from Asia (about 75% of newly-made robots are installed there) mainly thanks to falling birth rates and labour shortages from an ageing demographic. However, demand from China, which accounted for almost 30% of Fanuc’s sales in fiscal 2022 fell in the quarter to December by almost a third thanks to general economic slowdown and price competition from local rivals. Although Fanuc’s products aren’t cheap (the cost of a standard robot arm is around $330,000), when you take into account wage rises over the last few years, they are looking increasingly compelling. Also, when you think about increasing pressure on manufacturers to improve productivity and the broadening possibilities that AI can give (e.g. object detection and decision-making) you can see why demand should continue to be strong. As far as Fanuc’s concerned, though, Europe currently contributes just 17% to group sales, so there is plenty of upside to be had in the region!

Then in Was Toyota’s bet on hybrid cars right all along? (Financial Times, David Keohane, Peter Campbell and Claire Bushey) we see an interesting debate on Toyota’s decision to stick with hybrids as market share of the new car market for Battery Electric Vehicles (BEVs) fell in the last three years in the UK and sale growth has also slowed down in the US and Europe, despite demand going up. Toyota has always maintained that consumers would be unwilling to shell out high prices for BEVs and has faced derision for sticking to its guns. However, it decision has been vindicated and sales of its hybrids continue to climb. It’s not the only car maker to benefit from hybrids – Ford has also done well in this area and now believed that sales of its hybrid vehicles will rise by a whopping 40% this year. It is also worth noting that hybrids are actually very profitable – moreso than traditional engine-only, plug-in hybrids and BEVs! Toyota’s chairman, Akio Toyoda, said last month that he reckoned that demand for BEVs would peak out at 30% of the global market, implying that there was plenty of space for hybrids. * SO WHAT? * While the onward march of BEVs is inevitable (because of regulations), the long

term future of hybrids may rest in the US, with its vast commuting distances and ongoing love for the internal combustion engine. One dealership said that hybrids’ share of sales more than doubled from 2019 to 42% in 2023, with the expectation that this will go north of 50%. Given the niggling doubts of range anxiety, hybrids certainly sound like a reasonable option (particularly if they’re cheaper than BEVs) for the next few years at least…

In consumer news, Consumers rediscover urge to splash cash (The Times, Jack Barnett) shows that the balance of retailers reporting weakening sales has dropped to its lowest level for ten months, according to the latest figures from the CBI. This is prompting optimism that Britons are starting to feel more confident about spending. Respondents to the survey added that they thought the pace of decline would go up again next month! Then in February dip sends UK food price inflation to nearly two-year low (The Guardian, Alex Lawson) we saw that food inflation has slowed right down, according to the BRC shop price index. * SO WHAT? * OK, so this is great news – especially for those on lower incomes who spend a greater percentage of their wages on “basics” but prices are still going up. Still, at least things are going in the right direction.

Meanwhile, in employment-related news, Junior lawyers at City firm could earn £2m over three years (The Times, Jonathan Ames) we see that partners at law firm Pogust Goodhead have committed to pay some junior lawyers up to £2m each over three years! This is following a £550m investment deal struck with American fund manager Grammercy. Pogust Goodhead specialises in group actions, including representing British customers who were affected by the VW emissions scandal. The junior lawyers would be paid out of a £200m investment pool and the rationale for all this is that the company wants to match pay for its best lawyers to contemporaries at hedge funds or investment banks. In an interview with The Lawyer website, chief exec Tom Goodhead said that he reckoned partners would earn between £10m and £20m from the pool while newly qualified solicitors could draw between £1m and £2m over the same time period! * SO WHAT? * The deal with Grammercy was struck in October with a view to expanding the class action market in Britain. This massive cash injection into a British law firm is unprecedented and it is most definitely going to stir up the legal profession! However, it is also going to be very interesting to see how this affects the development of class actions in the UK. FWIW, I believe that the UK is largely non-litigious (as in, most people don’t go round saying “I’m going to sue you!”, which perhaps our American cousins are more inclined to do) so it could take a while to catch on. However, I think that all we need to see is a few successful cases with some fat payouts and that could all change. If THAT happens, I think that we could potentially see a rise in the incidence and premiums of professional indemnity and legal protection insurance.

Meanwhile, Expedia to Reduce Workforce by 9% Amid Transformational Efforts (Wall Street Journal, Sabela Ojea) shows that the online travel firm is going to cut its global headcount by 1,500 employees (around 9%) as part of its organisational and technological transformation. * SO WHAT? * This is interesting because it seems to me that companies involved in the travel industry (airlines, hotels, etc) seem to be doing pretty well at the moment as consumers seek “experiences”, despite being cash-strapped. However, Expedia reported lower-than-expected gross bookings in the December quarter and last week we saw the share price of competitor Booking Holdings weakening because the company’s forecast for travel reservations came in below market expectations. I wonder whether this is an American thing because over in Europe it seems to me that travel companies (like Tui) and airlines (e.g. EasyJet – not so much Ryanair – but that’s because of its ongoing spat with some online travel agents) are actually doing pretty well for themselves at the moment.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

UK housebuilders face scrutiny and Hammerson sells a shopping centre at a discount…

Big builders suspected of collusion to drive up prices (Daily Telegraph, Riya Makwana) shows that the CMA announced yesterday that it would be investigating the “suspected sharing of commercially sensitive information by housebuilders, which could be influencing the build-out of sites and the prices of new homes”. This investigation will look at the practices of Barratt Developments, Bellway, Berkeley, Bloor Homes, Persimmon, Redrow, Taylor Wimpey and Vistry and specifically at whether they’ve colluded on house prices, the rate at which new homes are built and incentives offered to buyers. However, Housebuilders have little to fear from latest look at Britain’s broken market (Financial Times, Lex) says that it’s unlikely that housebuilders are to blame for hogging land and boosting prices and that, actually, the real reason why we continue to fall short of making enough homes to meet demand is because of the overly complex/unpredictable planning system. It looks like this is going to be a problem that politicians are going to have to wrestle with.

Then in Hammerson sells shopping centre at £10m discount (Daily Telegraph, Riya Makwana) we see that the Union Square shopping centre in Aberdeen has just been sold for £111m, 8% lower than its value at the end of last year, to US-based real estate fund Lone Star as Hammerson ploughs on with offloading “non-core” assets. Hammerson also owns assets including Brent Cross (North London), Bullring & Grand Central (Birmingham), Westquay (Southampton) and The Oracle (Reading) and has been focusing, over the last two years, on streamlining its assets into a portfolio of dominant city centre destinations. * SO WHAT? * Commercial property has had a rough few years thanks to rising interest rates scaring off buyers, the whole WFH phenomenon that redrew corporate needs for office space and the decimation of footfall for malls as people shopped online or didn’t bother going because they were empty. However, Hammerson has now sold off all of its less-dominant properties, freeing up more cash. I would have thought, with expectations for rising interest rates and rising confidence of both companies and consumers, that activity in the commercial property market will start to pick up again this year as real estate players juggle their portfolios.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Sweden joins NATO, Microsoft invests in Mistral, Amex does BNPL, Wincanton is subject to a bidding war and Homebase goes up for sale again…

In a quick scoot around some of today’s other interesting stories, Sweden overcomes final hurdle to join Nato in historic shift (Financial Times, Richard Milne and Marton Dunai) shows that Sweden has now become a member of NATO as Hungary (the final hurdle) approved its application. This could be official as soon as this Friday.

Then in tech, Microsoft strikes deal with Mistral in push beyond OpenAI (Financial Times, Madhumita Murgia) shows that the American giant has agreed a “multiyear partnership” with French AI start-up Mistral as it broadens its involvement in AI beyond OpenAI. Microsoft said it would put money into Mistral, the ten month old start-up, but did not reveal exactly how much. It will not hold any equity in it. The idea is to collaborate on building applications for governments across Europe and “use these AI models to address public sector-specific needs”. The AI race continues!

Meanwhile, in American Express in buy now, pay later challenge to Klarna (Daily Telegraph, Matthew Field) we see that the US payments company is rolling out plans for BNPL in the UK, where

it will allow Amex users to pay for purchases worth £100 and over in equal instalments over three, six or 12 months for a fixed fee but no additional interest. This feature will be available on all of its gold and platinum credit cards as well as ones for British Airways and other businesses. * SO WHAT? * Amex rolled this out in the US three years ago, but this latest move will provide another major competitor to Klarna. Can Klarna continue to be the major player now that the “grown ups” are entering the room??

Then in Foreign buyers spark bidding war for Wincanton (Daily Telegraph, Michael Bow) we see that a bidding war could shortly be waged over Britain’s last independent road haulier, Wincanton, as America’s GXO might gate-crash the bid from France’s CMA CGM. CMA CGM’s offer had already got the backing of the board but GXO has just done its due diligence and may now mount a rival bid! Doesn’t it feel like M&A activity is now hotting up in the UK??

Meanwhile, Homebase up for sale for second time in four years (The Times, Isabella Fish) shows that Hilco, which bought the DIY and garden chain for £1 in 2018, could be closer to selling it as it’s currently in talks with parties including The Range and B&M European Value Retail. Hilco bought it following the disastrous ownership under Australia’s Wesfarmers. After selling off assets and cutting rents, Hilco is now ready to sell it off. No-one seems to want it – but I guess that there is a price for everything! Fun fact: Homebase was co-founded by Sainsbury’s!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I’ve never done proper dancing before. I do think it’s impressive, though – and this is a-may-zing daaaahhhlings! This looks absolutely exhausting!!!