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The Market
London shares closed on a firm level on Friday, though off earlier highs, in the wake of gains on Wall Street following benign US jobless data. The US unemployment rate rose a higher-than-expected 4.1 per cent in August, against four per cent in July, though analysts had widely forecast that the rate would remain unchanged at four per cent for the third month in a row.
The FTSE 100 index closed the week 122.3 points higher at 6,795.0, off an earlier high at 6,838.6, but well above a low of 6,672.7. All the broader FTSE indices also closed in firmly positive territory. Volume was a substantial 2.329 billion shares changing hands in 154,902 transactions, swollen by strong trading in Vodafone, with 445.78 million shares were traded.
Strength in selected telecom, media and technology (TMT) issues continued to provide the main support for UK blue chips throughout the day: good progress was seen in early morning trading, with strength in technology and telecom stocks boosted by Nasdaq's overnight leap.
Telecoms provided the underlying theme to the day's trading, with market heavyweight Vodafone continuing to see good demand, taking on 21-3/4 pence at 300 and providing a big chunk of the FTSE 100's advance, thanks to bullish comments from Merrill Lynch.
The US broker repeated its 'buy' stance and has raised its EPS forecasts for the telecom blue chip, though it cut its price target to 525 pence from 590 pence. Italian press reports that Vodafone is close to agreeing the disposal of its fixed line business in Italy, Infostrada also gave the telecom stock a boost.
BT also stood out, up 5 pence at 880 pence after announcing plans to sell its mobile satellite operations to Stratos Global for £157 million. The Financial Times also reported that BT is to put the brakes on any big deals while it conducts a string of disposals to cut its debt mountain by at least £10 billion.
Standard Chartered
Standard Chartered, the banking group, reported a 31 per cent increase in pre-tax profits to £356 million for the six months to 30 June. The performance of Standard Chartered in the first half of 2000, compared with the first half of 1999, reflected the improving economic environment in its major markets and the results of its growth strategy.
In May the banking group announced that it was to undertake a strategic review of Chartered Trust. This is an excellent business but it was felt that another organisation might be better placed to exploit its potential in the UK and Europe. A number of approaches have been received from potential purchasers and the bank expects to make a statement on the future of Chartered Trust within the next few weeks.
In addition, the banking group has decided to undertake a major productivity programme to improve efficiency and customer service. To build an appropriate platform for future growth, Standard Chartered needs to combine and centralise processing in low cost locations and simplify the organisational structure.
The total cost of this very fundamental productivity programme is currently estimated at around £480 million over a three-year period. It expects to take £200 million of this as a restructuring charge in the current year. This should result in an on-going cost savings of £70 million in 2001 rising to £170 million per annum with effect from 2003 as a result of this initiative.
The economic recovery in Asia Pacific has resulted in the debt charge for Hong Kong continuing its downward trend; £108 million in the first half of 1999, £70 million in the second half and £33 million in the first half of 2000. The debt charge for other countries in Asia Pacific peaked in the second half of 1999 at £108 million and had reduced 59 per cent to £44 million in the first half of this year. The deteriorating economic and political situation in Zimbabwe has, however, resulted in an increased overall debt charge for Africa of £22 million compared to the equivalent period last year.
The Americas and UK have experienced increased debt charges mainly reflecting lower recoveries and new provisions in respect of exposures in Venezuela and Colombia where economic conditions remain difficult.
CGNU
CGNU's results represented the first opportunity to report on the performance of CGNU following the merger of CGU with Norwich Union. Excellent progress has been made in integrating the businesses and, following detailed analysis, the estimated annual cost savings to be achieved by December 2001 have increased from £250 million to £275 million. The estimated costs of achieving these savings will amount to £425 million.
CGNU has taken a number of significant steps in developing its life and savings businesses during the period. CGNU's relationships with Royal Bank of Scotland Group and Tesco in the UK, Bancaja in Spain and an expanded distribution agreement with Banca Popolare di Lodi in Italy offer the insurance group significant opportunities to grow further in these important markets. The Group's decision to sell its smaller Polish life and pensions businesses, previously owned by Norwich Union, will not affect its leading position in this market.
CGNU's "orphan" assets in the UK of approximately £4 billion are currently used to support strong business development, which benefits both policyholders and shareholders. In the meantime, it will also examine whether this continues to be the most attractive position for both sets of stakeholders. Given the complexity of the issues a conclusion to this debate is unlikely to be found in the short-term.
The Group's assets under management increased to £216 billion and its retail investment sales increased 21 per cent to £808 million. A cornerstone of CGNU's strategy is to focus on markets where it can achieve a top-five market position.
The insurance group has decided to sell its general insurance businesses CGU Holdings Limited in South Africa, and GAVAG in Germany, and its life business in Canada. Against a difficult background negotiations continue to achieve the sale of its US general insurance business which it expects to conclude around the end of the year.
CGNU is actively developing new e-commerce activities and, in the UK, it is expected to launch a new e-enabled wealth management proposition to commence in the fourth quarter of 2000. The combined group has achieved an improved competitive position in a number of its chosen
markets as well as significant opportunities for cost savings, and is in a good position to provide increased returns for shareholders.
Aston Villa
Aston Villa, the football club, reported a loss of £4.85 million for the year to 31 May. Higher wages and transfer costs are putting considerable pressure on the club's bottom line. Despite the poor financial performance, the club's chairman was praising the fact that the team finished sixth in the FA Premier League. In the last five seasons the Club has not finished lower than seventh, firmly establishing it among the higher echelons of English Clubs.
In addition, the club enjoyed lengthy cup runs in 1999/2000 only falling at the final hurdle in the FA Cup and in the Semi Final of the Worthington Cup. The chairman added that for most clubs this would have been seen as an excellent season but it is a reflection of the standards expected by Aston Villa and its supporters. Meanwhile, the club remains disappointed to have missed out on its ultimate goal of European Champions League qualification.
During the 1999/2000 season the club purchased David James and George Boateng. Villa also extended the contract of Holte End favourite, Ian Taylor. Furthermore it secured the services from 2000/01 of Luc Nilis, a current Belgian International who played in the recent European Championships.
Since the year-end it has signed, Alpay, currently an automatic choice in the Turkish national side and continue to work hard at bringing players to the club who will improve the squad. It has also extended the contracts of the players Mark Delaney and Lloyd Samuel. None of the current senior players have contracts which end before 30 June 2002.
The club's chairman pointed out that seven players, who have come through Villa's youth team ranks made first team appearances last year, while the reserve team is consistently made up of youngsters as grounding for future first team appearances and who compete mainly against much older more experienced players.
Despite relative success Villa's average attendances have fallen compared to many of its less successful competitors. The board remains concerned about this development and continues to monitor the situation carefully. There were no increases in season ticket prices for 2000/2001 and some seats were available at reduced prices.
To make matters worse, salaries are escalating as some players take the opportunities presented by the inability of their clubs to take a transfer fee when their contracts end because of the Bosman rule. Nevertheless, for some key players, transfer fees are still increasing with record fees being paid but mainly by Italian and Spanish clubs.
Villa's chairman argued that even the most successful club in Europe at present has stated that it is unable to meet the demands in respect of some players' salaries and transfer fees.
Against this background Villa's operating profits in 1999/2000 were reduced by increased salaries of 24 per cent and were insufficient to absorb the charge for amortisation of players. This reflected the club's desire to have a squad that can compete with the best. Nevertheless, Villa has to understand that more clubs are challenging for the rewards than there are places available in each year and the board must balance risk and reward accordingly.
In January Aston Villa announced an initial investment by NTL of £11 million increasing to £26 million by next year. Most importantly, the first tranche of that investment provided the funds for the Trinity Road Stand replacement, a scheme which had evolved over three years and which can now be completed without any impact on the funds available for football matters.
The manager and the board have an agreed strategy to improve the playing squad and work will be continuous on that front which may result in more transfers in the near future. The first team is currently involved in the UEFA Intertoto Cup and success will see entry into the UEFA Cup for the 2000/01 season. Entry into the UEFA Cup could have a significant impact on levels of gate and broadcast income.
Now that the stadium development has commenced, Villa's attentions are turning to the successful development of a hotel to complement its conference and banqueting facilities and the development of two sites of 11 acres and 7 acres respectively under ownership and within half a mile of Villa Park.
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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