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Leading shares in London finished a subdued pre-bank holiday session modestly lower, after a very volatile afternoon session, reflecting the similar path being taken in New York. Overall trading was thin, directionless, and patternless as the only real focus remained the current outlook for US interest rates, with this month's 50 basis point hike in the Fed Funds rate to six per cent failing to allay underlying fears about an overheating US economy.
By the Friday close, the FTSE 100 index was 14.2 points firmer at 6,216.9, well above morning lows of 6,153.2, but also well below an afternoon peak of 6,252.2. All the broader FTSE indices were also weak, aside from the TechMARK 100 which managed to defy gravity, firming 10.00 points at 3,008.11 with Nasdaq weak, but fairly steady. Volume was modest ahead of the long UK bank holiday weekend, with 1.2371 million shares changing hands in 95,385 transactions.
London shares started the session in depressing fashion, dropping back in reaction to a sharp 200 point plunge overnight by the Dow Jones Industrial Average and a reversal of earlier gains by the Nasdaq. After the flood of corporate news and results over the past week, Friday - as is traditional - saw almost a complete dearth of company statements, particularly from blue chips and second liners.
Telecom, media and technology issues led the early retreat in London, under pressure after Nasdaq's reversal of fortune overnight, although in actual fact there was little real selling and the mark down was fairly selective. Financial stocks also took a pounding early on, reflecting sharp falls from their US peers overnight in New York. US brokerage issues suffered after news of a downgrade in rating by Merrill Lynch on Goldman Sachs - ironically Merrill cited the cost of the impact of current market volatility on investment banks as the reason for its caution.
An absence of any key UK economic data also created something of a vacuum in the UK market which, in thin trading conditions, provided exaggerated movements both upwards and downwards. However, despite this, as the morning session progressed, some selective bargain hunting, and hopes that Wall Street would post a recovery at the restart helped turn UK blue chips around.
The FTSE 100 index recorded its peak for the day soon after the release of some fairly benign US data: April durable goods orders fell 6.4 per cent the largest decline since December 1991, and sharper than expected. The consensus forecast was for durable goods orders to fall 0.6 per cent. US consumer spending rose 0.4 per cent in April, in line with consensus expectations, while personal income rose 0.7 per cent, a touch higher than the 0.6 per cent forecast. The US data did little to clarify the picture for US interest rates, and although S&P and Nasdaq futures responded positive, the early good bounce back on Wall Street proved short-lived.
Selected blue chip telecom and technology issues were back under pressure as the Nasdaq index put in a volatile morning performance across the Atlantic. Psion lost 28 pence at 519 pence, Baltimore fell 9-1/2 pence to 390 pence, Freeserve shed 9-1/2 pence at 392 pence, and Telewest lost 10-3/4 pence at 246 pence. However, other selected telecom stocks bounced back, helped by news that Morgan Stanley has raised its weighing for the sector in its European Model Portfolio to 'neutral' from 'underweight'.
Energis topped the FTSE 100 gainers, up 177 pence at 2,345 pence, while Colt Telecom added 128 pence at 2,207 pence, Kingston Communications gained 17 pence at 557 pence, and Cable & Wireless firmed 28 pence at 1,030 pence. However, blue chip heavyweight Vodafone AirTouch stayed weak, off 5-3/4 pence at 281 pence. The stock remained in focus after a report in the Financial Times suggested that France Telecom is now in exclusive talks to buy the Orange mobile phones business from the UK group for about £30 billion. The Financial Times added that if the talks reach a conclusion, the companies are expected to make an announcement early next week.
Elsewhere, BG Group was also in demand, adding 7-1/2 pence at 398 pence, propelled higher by brokers' comments. UBS Warburg has raised its rating to "strong buy" from "buy", upping its price target to 520 pence from 420 pence; while Deutsche Bank repeated its "strong buy" rating and 490 pence target. Meanwhile, CGU, up 47-1/2 pence at 1,040-1/2 pence and Norwich Union ahead 20-1/4 pence at 496-1/4 pence, also reflected the impending completion of their merger, and news that the new stock will be classified as a life assurer.
Following Goldman Sachs downgrade, Royal Bank of Scotland fell 18-1/2 pence to 1,109-1/2 pence, Standard Chartered lost 20 pence at 879 pence, Barclays eased two pence to 1,712 pence, and Bank of Scotland slipped two pence to 626 pence. Meanwhile, Alliance & Leicester lost 7-1/2 pence at 599 pence, following the sector trend lower, despite an encouraging report from pre-close period meetings with analysts, with the firm stating that its overall performance is consistent with general market expectations. However, HSBC managed to hold firm, up 4-1/2 pence at 731 pence after its positive AGM statement.
"Old economy" issue Invensys topped the FTSE 100 fallers list, shedding 22-1/4 pence at 268 pence after a report in the Wall Street Journal Europe raised the possibility that the group could be a possible suitor for troubled Dutch software group Baan. GKN also suffered after the group's AGM statement warned that sterling translation effects on its Continental European businesses will have an adverse impact on reported
Marks & Spencer
Marks & Spencer, the distressed retail giant, reported pre-tax profits of £417.5 million for the year to 1 April, a decline of 24 per cent on the previous year. The company is going through a period of significant change and is being transformed from a traditional retailer with unique supply side strengths into a multi-channel retailer with unique customer understanding. Exceptional charges of £139.7 million included an additional £47.3 million of restructuring costs in stores and Head Office incurred since the half year.
In UK retailing, Marks & Spencer improved the gross margin, with the first effects from new buying methods and better stock management over the Christmas period. Year-end stock levels in all main product areas were below last year's and forward cover positions have improved.
In Europe, Marks & Spencer's second half performance was considerably better than the comparable period last year, helped by the closure of seven under-performing stores (three in France and four in Germany) and the improved performance of its franchises, particularly in Greece and Turkey. There has been a small improvement in the European bought in margin, partly due to better buying practices. Marks & Spencer opened new stores in Barcelona and Frankfurt, but overall footage has been reduced by 129,000 square feet. Sales in the Far East have improved by seven perr cent, helped by an improving economy and significantly increased local production. Costs have been well controlled and the group has reduced operating losses from £14 million to £4 million.
The closure of Marks & Spencers' Canadian business was completed at a cost of £21 million compared to an estimated £25 million. Total European restructuring costs of £17.0m are made up of £8.7m of redundancy and related costs and £8.3 million of losses on store disposals. The exceptional charge for UK restructuring is £63.3 million. Of this, £16.0 million of redundancy costs were reported at the half year following the rationalisation of UK store management structures and the closure of a distribution centre (Tyneside).Marks & Spencer's Head Office costs totalled £18.5 million, resulted mainly from the restructuring of UK Retail into Customer Business Units.
Of the intended £400 million to be raised by the group through the sale or re-financing of non-operational properties, approximately £240 million has been realised from disposals, the largest of which were The Gyle Shopping Centre and an investment property in Newcastle. Group capital expenditure was £451 million in the year just ended.
The retailing group expects the figure to fall in the current year, with a further reduction in new store openings and footage developments.
Marks & Spencers' Kings Super Markets remains a profitable, well-managed operation but Marks was unable to achieve a price that reflected the value of the business. The group also remains committed to continue growing its business in New Jersey and surrounding areas. This year it is expected to open the first stores on Long Island, New York.
Marks & Spencers' CEO stated that the board remains committed to achieving a sustainable recovery for Marks & Spencer and warned that it will take more time to realise the full benefits of these changes, but the positive effects are beginning to show. In fact, the board has taken the decision to propose a total dividend of nine pence per share, an amount equal to the total net profit for last year.
The decision on the dividend, along with the other profound changes taking place throughout the company, will help the group to create a much stronger business. In the last eight weeks, total sales rose by 4.2 per cent or 2.1 per cent on a like-for-like basis. The aggregates were helped by strong sales in the Home division.
The group's CEO argued that Marks has slowed the sales decline and current trading continues to improve. In addition, it has radically refocused the company towards its customers, who seem to be noticing a difference in the stores and products. The CEO remains confident that the changes that have been made to reposition Marks & Spencer as a modern, customer-facing business will achieve a sustainable recovery.
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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