Construction, Next, Persimmon: Business news in brief, 3 November 2016

Growth in Britain's construction industry hit a seven-month high in October as housebuilding rose, but slowing order books and soaring prices for building materials darkened the outlook, a survey showed on Wednesday. The Markit/CIPS UK Construction Purchasing Managers' Index (PMI) rose unexpectedly to 52.6 from 52.3, confounding a Reuters poll forecast for a drop to 51.8. Sterling and government bonds showed little reaction to the figures. While the survey chimed with signs the economy has maintained momentum since June's Brexit vote, weakening growth in new orders and rocketing costs suggested next year will prove more difficult.

“The downturn in the construction sector continued to ease in October, but it would be premature to conclude that the sector is back on a recovery path,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics. Survey compiler IHS Markit said respondents held back investment spending because of uncertainty surrounding Britain's exit from the European Union. The PMI showed business expectations for the year ahead cooled markedly, while prices paid by construction firms for raw materials and goods rose at the second fastest pace since 2011.

“We expect input prices to rise significantly in 2017 which will put financial pressure on an industry just about managing on squeezed margins and fixed-price contracts,” said Paul Trigg, construction specialist at trade credit provider Euler Hermes.

Reuters

British clothing retailer Next said on Wednesday trading prospects would be tough next year after reporting another dip in quarterly sales, forcing the company to rely on further cost savings to maintain its full-year profit forecast. Chief executive Lord Wolfson said Britain's consumer climate was likely to remain difficult as inflation rises and real earnings are likely to be squeezed. “The macro economic backdrop doesn't look exciting,” Lord Wolfson, a Conservative Party member of the Lords and a supporter of Brexit, told Reuters. “It is likely we will have another year [with] a difficult consumer environment.”

Next, which trades from about 540 shops in Britain and Ireland, from franchised stores overseas and online, has been Britain's most successful clothing retailer of the past decade but it warned in March that 2016 could be its toughest year since 2008 and its shares have fallen by a third this year. Lord Wolfson said underlying demand for clothing has been weak since October 2015, when he identified a cyclical move away from spending on apparel back into areas that suffered the most during the economic downturn, such as eating out and travel. A warmer than usual September also dented Next's full-price sales for its third quarter to 31 October, which fell 3.5 per cent. That compared with analysts' forecasts of a drop of 1.5 to 4.5 per cent and a second-quarter rise of 0.3 per cent. Next forecast full price sales for its year to January 2017 in a range of down 1.75 per cent to up 1.25 per cent compared to previous guidance of down 2.5 per cent to up 2.5 per cent.

Reuters

Britain's second biggest housebuilder Persimmon said it will slow the pace of new land purchases due to the uncertainty likely next year as Britain starts divorce talks with the EU, despite sales rising almost a fifth since the Brexit vote. A number of housebuilders reported an immediate dip in demand after the 23 June referendum but several, including Britain's largest builder Barratt, have reported strong demand in recent weeks. Persimmon said sales were up 19 per cent since July and the total value of reserved homes for sale rose 4 per cent to £757m, but it added that it would take a more cautious approach to purchasing land.

“We will probably replace the land that we've utilised this year... so not quite as strong as we've done in the past few years where we've been replacing at 150 to 200 per cent,” chief executive Jeff Fairburn told Reuters. “During the course of next year as we go through the process of leaving the EU, there is a bit more uncertainty so we're just being a little more cautious in terms of our land-purchasing activities at that time.” It can take years from a plot of land being earmarked for purchase by a housebuilder to a new home being completed, due to planning permission and build time, meaning that any continued slowdown would take a while to affect the number of completions. But in a new sign that the housing market may be cooling after the Brexit vote, data from mortgage lender Nationwide released on Wednesday showed that after months of monthly house price rises, prices were unchanged in October.

Reuters

G4S shares rose nearly 9 per cent after the world's biggest security firm reported double-digit earnings growth in the nine months to September and celebrated new contracts worth £2bn. The company said revenues from continued operations grew 5.7 per cent to £4.8 bn in the first nine months of the year, compared to the same period in 2015. Its latest trading update also mentioned double-digit earnings growth, but stopped short of revealing the figure. G4S also cheered new contracts that it said were worth £2 bn that would deliver revenues of £1 bn per year. The news helped send G4S shares to the top of the FTSE 250, rising 8.8 per cent or 19.3p to 239.4p.

Chief executive Ashley Almanza said: “The group's strategy is delivering tangible benefits which are reflected in our operating and financial performance. The strong progress made in the first half has been sustained.” Mr Almanza added: “We still have a long way to go to realise the full potential of our strategy and we are encouraged by the group's progress and prospects.” The company said it would continue to tackle its pension deficit, but had agreed to a reduced payment of £39m for full-year 2016, which would increase by 3 per cent per year until their next funding valuation.

Reuters

British Airways-owner IAG said it would start to provide Wi-Fi across its airlines' short-haul fleets from 2017, following similar moves from rival airlines as passengers increasingly demand to stay connected in the air. IAG said it signed a deal with satellite company Inmarsat to be the launch customer for a service which will offer a 4G broadband network onboard. The service would be available to people travelling on British Airways flights from next summer, while its other airlines, under the Aer Lingus, Iberia and Vueling brands, would be equipped with the Wi-Fi technology from later in 2017. Rival carrier Lufthansa started providing satellite-based broadband on board its short-haul flights starting from last month, while Norwegian has offered customers free Wi-Fi on board for some time.

Reuters

Chinese ecommerce giant Alibaba's sales soared 55 per cent in the last quarter, thanks in part to a more than doubling of revenue from cloud computing, the company said on Wednesday. The year-on-year growth in group sales, to 34.29bn yuan (£4.12bn), was not matched by net profit, which slid 66 per cent to 7.62bn yuan. The drop was mostly due to an unfavourable comparison, as last year the firm booked an exceptional gain linked to the re-evaluation of its participation in one unit.

“Alibaba Group had a great quarter,” chief executive Daniel Zhang said in a statement on the firm's second quarter, which ended in September. “Our results reflect our increasing ability to monetise our 450m mobile users through new and innovative social commerce experiences.” The number of mobile users increased by 23m since the end of the previous quarter in June.

AFP

Irish low-cost airline Ryanair on Wednesday said it would base two aircraft at Frankfurt airport, Germany's busiest, serving sun-soaked tourist destinations in Portugal and Spain, sparking outrage among German competitors. Ryanair hopes to bring 400,000 travellers per year from the German financial centre to Alicante, Faro, Malaga and Palma de Mallorca with 28 flights per week starting in March 2017, Ryanair chief commercial officer David O'Brien said in a statement. Mr O'Brien said the new base represented an investment of around €180m.

The move “underlines the increasing importance of Frankfurt for low cost traffic,” Stefan Schulte, chief executive of airport operator Fraport said in the joint statement. Ryanair will count nine bases in Germany once Frankfurt is up and running, among some 85 in Europe.

AFP

A former executive at global investment manager BlackRock has pleaded guilty to two counts of insider dealing. Mark Lyttleton, who was charged by the Financial Conduct Authority (FCA) with the offences in September, faces a maximum sentence of seven years and a fine. At Southwark Crown Court on Wednesday, Mr Lyttleton admitted dealing on the basis of insider information he obtained while working at BlackRock.

“In his role in the fundamental equity team at BlackRock, Mr Lyttleton was able to discover and act on inside information either by working on the deals concerning the stocks or being party to conversations conducted by colleagues,” the FCA said. The two stocks concerned are EnCore Oil and Cairn Energy, and the offences relate to trades made in 2011.

PA

Tesla Motors had an obligation to pay a total of about $1.7bn (£1.39bn) to Japan's Panasonic as of 30 September for electric vehicle battery cells made at Tesla's gigafactory in Nevada, the carmaker said in a regulatory filing. The $1.7bn figure is unchanged from filings in October. Panasonic, Tesla's longstanding battery partner, agreed in 2014 to invest in equipment, machinery and other manufacturing tools at the gigafactory, which will make cylindrical lithium-ion cells for Tesla's cars. Tesla has said it expects to start making batteries at the $5bn (£4bn) plant by the end of the year. The batteries will be used initially in Tesla's energy products and later in its cars.

Reuters

Millennium & Copthorne Hotels said it had received a boost from tourism spurred on by the weak pound as occupancy for its eight London hotels grew 4.8 per cent over the three months to 30 September. Revenues and earnings have also been given a fillip from exchange rate movements, adding £43m and £7m respectively for the first nine months of the year. M&C – which owns the Millennium, Grand Millennium, Copthorne and Kingsgate hotels – said pre-tax profits rose 27.8 per cent to £46m in the third quarter and by 4.1 per cent to £102m over the first nine months.

PA