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The Market
Blue chips in London ended a see-saw week on a weak note, hit hard late in the day on Friday, by the slide on Wall Street amid growing concerns that US interest rates will have to rise further than originally expected to counter the continued strength of the US economy. The FTSE 100 index ended the session down 44.3 points at 6,165, above its 6,151.4 low of the day, but well below the 6,264.1 high seen in early trade.
Meanwhile, the FTSE Mid 250 index and Smaller Cap indices managed to buck the weaker trend, closing 53.9 higher at 6,298.4 and up 54.7 at 3,254.3 respectively. Volume was a very healthy with 1.789 billion shares exchanging hands in 143,718 transactions, swollen by continued active trading in Vodafone AirTouch and some hefty program trades.
Trading got off to a firm start despite a mixed performance on Wall Street overnight, with high-tech and internet stocks finding support from the big rally on Nasdaq - up 2.7 per cent. Investors also took comfort from Thursday's comments from the Bank of England, predicting that recent interest rate hikes and the stronger pound would prevent Britain's buoyant economy from overheating. Sentiment in mid-morning was further supported by muted UK provisional M4 money supply numbers for January, and news that the public sector registered a record surplus.
Nevertheless, the initial enthusiasm for the market began to wane ahead of the release of key US inflation data, with some fearing that strong numbers could trigger a sell-off in New York - which would quickly be matched in London. As it was the CPI data for January showed both CPI and core rate CPI posting a rise of 0.2 per cent on the month - prompting a temporary spike in the FTSE 100 index amid hopes that Wall Street could be set for a rally. But these hopes of a firm start in New York after the in-line January CPI data soon proved to be short-lived, with the DJIA quickly moving into negative territory as interest hike fears returned to the fore.
Although expectations of a further tightening in US interest rates had already been priced into the market, traders said Fed chairman Alan Greenspan's hawkish comments on the strength of the US economy has sparked talk that the Fed funds rate may have to rise much further than the 50 basis points rise the market had been expecting to counter potential inflationary pressures. At the London close, the Dow Jones Industrial Average (DJIA) was 89 points lower, while the tech-dominated Nasdaq reversed earlier gains to show a fall of around 13 points.
However, corporate news remained the main driver in London on Friday. Halifax retained pole position on the FTSE 100 leaders board, up a massive 13 per cent, or 73 pence at 625, as brokers warmed to record full year profits, positive costs news a pledge of zero and a confident outlook statement. The market was also excited by yet further positive news on its new Internet offering, with the bank revealing plans for its Internet bank - IF.com. The news ended a week which has seen Halifax trying to establish its credentials as part of the "new economy", with new online insurance group, esure, launched and the WAP deal with BT's Cellnet unveiled last week.
Other banking issues were also well-bid, as interest rate hike fears - at least in the UK - abated and analysts digested their ongoing transformation into new and more "sexy" internet plays. Woolwich was 20-1/2 higher at 306-1/2, while Abbey National - which launched its internet bank Cahoot yesterday - firmed 13 to 726. Norwich Union, tipped by Goldman Sachs as a 'market out-performer', also attracted fresh buying as rumours that banking giant Lloyds TSB may be casting its eye over the group.
Norwich Union closed the day up 26-1/4 pence at 435-1/2pence, with Goldman also a fan of CGU, up 46-1/2pence at 796-1/2 pence, and Royal Sun Alliance, 2-1/2 pence higher at 352-1/2 pence. Bass was also a winner, up 6 pence at 701 pence, after confirming it is reviewing strategic options for its brewing arm, with the press suggesting the division could attract a price tag of at least £1.8 billion. Dutch brewing giant Heineken has already signalled its interest in the division, which brews Caffrey's and Carlsberg lager, with South African Breweries also mooted as a possible buyer.
The hope is that such a sale would leave Bass free to focus on the high growth leisure and hotels sector, which attract a higher rating and where growth prospects are seen as better. CSFB was a fan, rating Bass a 'buy' with a 850 pence price target and suggesting the brewing arm could be worth £2 billion. The news lifted the rest of the brewing sector, which has bombed out spectacularly in recent months as investors piled into "hot" Internet and high-tech issues.
BSkyB
BSkyB, the satellite TV broadcaster, reported that total subscribers to Sky's channels increased by 543,000 in the three months to 31 December 1999. Of the total 8,404,000 subscribers, 7,799,000 are in the UK, and 605,000 in Eire. The number of total direct-to-home subscribers increased by a record 384,000 to 3,966,000 in the quarter to December- more than 30 per cent greater than the previous highest quarterly growth of 290,000 in the first quarter of 1993/94. The total number of digital subscribers is now greater than 2.3 million.
Analogue churn during the six months to 31 December 1999 decreased to 201,000 compared to 256,000 in the same period last year despite the analogue price increase in September. Encouragingly, digital churn remains at negligible levels at just 15,000 in the period bringing the cumulative number of subscribers who have churned off digital to 23,000, less than 1 per cent of total sales.
Whilst providing a customer service which reflects best practice today, Sky remains committed to leading innovation in customer service and plans to invest up to £50 million in upgrading its existing customer contact centres in Scotland with state of the art technology and processes. It will be operational within 12 months. The financial return on this investment is expected through reduced churn and the ability to develop new revenue streams from subscribers. The cost of handling each call is also expected to fall.
Sky Pictures has secured a theatrical distribution deal under which certain titles will be released in cinemas before being broadcast on Sky Premier. Sky Sports has renewed the contract for the European Golf Tour including the next two Ryder Cup tournaments and has secured the exclusive rights to England's next two winter tours to Pakistan and Australia.
BSkyB's strategy will be to combine investment in Sky's existing new media content businesses with new initiatives and investments. In each case the objective is to build cross platform portals driving viewers between the television, internet and the interactive television service, Open. Sky anticipates making major investment in the sports genre where Sky aims to become the number one sports internet site in the UK within 12 months. BSkyB is also pursuing agreements with BT Cellnet and others to supply Sky content to users of WAP mobile telephones.
BSkyB's programming costs increased in the six months to December 31 by £69.0 million (19 per cent) over the period to £435.7 million largely due to the increased number of subscribers. Marketing costs increased £68.3 million (62 per cent) to £179.0 million in the period due mainly to the substantial cost (£123.9m) of acquiring 699,000 new subscribers. Subscriber related costs increased - £27.2 million to £99.9 million driven by the roll-out of digital requiring additional staff to handle greater call volumes and the cost of issuing new smartcards.
Although BSkyB seems well placed in the new digital media era, the competition is getting tougher and BSkyB has still a long way to go.
Amstrad
Amstrad, the consumer electronics group, announced that as one of the appointed suppliers of digital satellite decoders, the company has benefited from strong demand for BSkyB's digital TV service. Amstrad currently has orders for delivery throughout the current financial year and well into the next financial year.
With the benefit of 15 months' experience in supply and following refinement of its production and development procedures in this new technology, it has been able to release some of the provisions against potential warranty costs on the digital satellite decoders, as the actual costs incurred have been lower than anticipated.
Amstrad has continued to sell cable TV products in the Australian market with sales significantly ahead of the same period last year and a number of new consumer electronic products having been introduced during the period. The company's focus remains to enhance activities in higher technology products. Amstrad continued to sell TVs through major supermarket chains but the increasingly competitive nature of this market means it will decline orders unless certain profit criteria are met.
The extension of the activities of its Hong Kong office to include a sales function is going according to plan and Amstrad expects this to be a source of growth for the future, servicing the expected expansion in world-wide sales of the group's innovative products. The fruition of some of Amstrads investment in R & D will be seen in the spring by the launch of a new telecommunications product aimed at the mass market. In true Amstrad tradition, this product will bring high technology to the masses in a simplified format, enabling it to exploit the new era of e-commerce and e-mail, at the same time as moving towards a revenue stream derived from down stream revenues. This project, which has been under development for the past 18 months, has been made possible by working with British Telecommunications, Internet and Multi-media division, with whom Amstrad has contracted to operate the system.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
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