Mother and baby retailer saw UK sales drop 11% to £500m last year but chief executive Simon Calver says break-even is in sight
Mothercare is crawling towards a recovery as chief executive Simon Calver insisted the UK company was on target to break even within two years.
The mother and baby goods retailer saw UK sales drop 11% to £500m last year. It reported a loss of £21.7m, a slight improvement on the £24.7m loss recorded in the previous twelve months.
The business turned in an impressive international performance, with sales up more than 8% to nearly £730m and profit up 20% to £42m, with China, India and Russia expanding successfully.
Total group sales, including wholesale operations, were down 0.3% to £1.23bn with profits of just £8.3m.
Calver said the company must slim down its store portfolio. He closed 56 stores last year, and plans a further 30 closures this year. The chain currently has 255 UK stores, but he hopes to whittle that down to 200. There are 1,300 outlets worldwide. He explained: “This is the first [year] of a three-year turnaround. We needed to shut down those stores because they were loss-making and traditionally we’ve had too many.”
Most of the closures have been Early Learning Centres, with the brand being integrated into Mothercare stores. The remaining loss-making stores due to close are mainly in high street locations rather than out-of-town centres.
In recent years Mothercare has struggled with competition for accessories and buggies from online stores such as Kiddicare, while supermarkets have launched lines of baby and children’s clothes.
Calver hopes to increase online sales, using his skills as the former boss of Lovefilm, alongside new chief finance officer, Matt Smith, who used to work for Argos.
Last year internet sales grew 18%, with 40% of orders made through the new mobile phone app, and click-and-collect services have been rolled out across all stores.
However, some analysts were less convinced the company can turn itself around, suggesting the plan was too ambitious.
Panmure Gordon analysts said: “It remains to be seen whether management has closed the right stores. We continue to believe that Mothercare will struggle to break even in the UK according to its own timetable.”
The shares closed down 9p at 355p, although, they have more than doubled since Calver joined the company.
ONS says Britain avoided a triple-dip recession because businesses replenished stocks – rather than from surging sales
Stockpiling by British businesses accounted for much of the growth in the UK economy in the first three months of the year, adding to concerns that its underlying health remains weak.
GDP growth was confirmed at 0.3% by the Office for National Statistics after inventories increased by 0.4%.
The ONS said business investment, a key indicator of the economy’s wellbeing, fell 0.4% and consumer spending rose a meagre 0.1%.
The disappointing details showed that the UK avoided a triple-dip recession only after businesses replenished stocks run down in the latter half of 2012, rather than generating growth from a surge in the sales of goods and services.
The Treasury remains confident that the UK economy will rebalance away from the City and government spending as it recovers over the coming years, but the early signs are not hopeful.
Separate figures showed that activity in the banking sector and a modest rise in government spending spurred the services industry to a 0.2% rise in March, which in turn accounted for the positive news in the GDP figures alongside inventories.
David Tinsley, UK economist at BNP Paribas, described the reliance on stockpiling as “unimpressive” while Capital Economics analyst Martin Beck said talk of rebalancing the economy looked “forlorn”.
Chris Leslie, Labour’s shadow financial secretary to the Treasury, said the figures “confirm that our flatlining economy is simply back to where it was six months ago”.
He said: “This is now the slowest recovery for over 100 years with just 1.1% growth since the 2010 spending review compared to the 6% forecast at the time. On jobs, growth, living standards and the deficit, this government’s economic policies have badly failed.”
George Osborne is keen to move away from Britain’s traditional dependence on the City and government spending as the chief drivers of economic activity. In the first two years of the government he focused on providing support for manufacturers and increasing the amount of credit available to firms for investment.
However, lending has remained tight and a lack of consumer confidence has seen most businesses restrain their spending and investment plans. Difficulties exporting to the markets in the eurozone have also hit sales and discouraged investment.
Manufacturing has begun to show signs of life again after a poor 2012 and the construction industry, which has also dragged on economic growth, has contracted at a slower pace in recent months.
Beck said the strong showing by the services sector in March, which was the third consecutive monthly rise, should provide a springboard for growth in the second quarter.
“But with employment and average earnings both dropping in the first three months on their level in the previous quarter, the foundations for a sustained recovery, even one driven by consumers, still look pretty rickety,” he said.
As part of the Government’s efforts to agree concrete action to tackle tax evasion and aggressive tax avoidance during the G8, the Prime Minister has today written to the leaders of crown dependencies and overseas territories about their role in getting the UK house in order.
The letter has been sent to the leaders of:
- British Virgin Islands
- Cayman Islands
- Turks and Caicos Islands
- The Isle of Man
Prime Minister’s letter
As you know, I have made fighting the scourge of tax evasion and aggressive tax avoidance a priority for the G8 Summit which the UK is hosting next month. With one month to go, this is the critical moment to get our own houses in order. I am looking to all the Overseas Territories and Crown Dependencies to continue to work in partnership with the UK in taking the lead on two critical issues: tax information exchange and beneficial ownership.
Let me set out exactly why. I have said before that I want to see the Overseas Territories and Crown Dependencies flourish, and I respect your right to be lower tax jurisdictions. I believe passionately in lower taxes as a vital driver of growth and prosperity for all. But lower taxes are only sustainable if what is owed is actually paid – and if the rules to achieve this are set and enforced fairly to create a level playing field right across the world. There is no point in dealing with tax evasion in one country if the problem is simply displaced to another.
So I very much welcome the commitments you have made to automatic tax information exchange, both on a bilateral and multilateral basis, which will help us to reach our goal of setting a global standard in tax transparency. There is a critical mass building. Last week’s European Finance Ministers meeting showed that the EU is getting on board. And I hope others around the world will follow the lead we are setting together.
We also need to ensure information exchange works effectively for all, particularly the poorest countries in the world. That is why we strongly support the Multilateral Convention on Mutual Assistance in Tax Matters. I know many of you have been considering joining and I ask you all to commit to do so in the run-up to the G8 Summit.
But dealing with tax evasion is not just about exchanging information. It is also about improving the quality and accuracy of that information. Put simply, that means we need to know who really owns and controls each and every company. This goes right to the heart of the ambition of Britain’s G8 to knock down the walls of company secrecy.
Some of you have already led the way with public commitments to produce Action Plans on beneficial ownership – and I hope those who have yet to can do so as quickly as possible. Getting the right content in these plans will now be critical. These will need to provide for fully resourced and properly managed centralised registries, that are freely available to law enforcement and tax collectors, and contain full and accurate details on the true ownership and control of every company.
As we continue our negotiations over the coming weeks, I look forward to working with you to ensure we fully meet the spirit as well as the letter of the Financial Action Task Force standards on beneficial ownership. The UK is hosting a high level event on 15 June to showcase progress on tax, trade and transparency, and I hope you can join us on the day to showcase the progress you have made. This is a real opportunity to set the global standard on transparency – and I am confident the Overseas Territories and Crown Dependencies will rise to the challenge.
Committee on Climate Change says the sooner the UK invests in low-carbon power generation the cheaper it will be
Investing in new renewable power generation, rather than a “dash for gas”, will be the lower-cost option for keeping the lights on while cutting greenhouse gas emissions, the government’s climate change watchdog has said.
The sooner the UK makes large investments in low-carbon generation – including offshore and onshore wind, nuclear power and energy from waste – the cheaper it will be, according to David Kennedy, chief executive of the Committee on Climate Change (CCC), the statutory body that advises ministers on meeting emissions targets.
The conclusions are likely to be controversial, as many MPs on the right of the Tory party have been clamouring for an end to onshore windfarms and reductions in renewable subsidies.
They would prefer to see a new “dash for gas” that would require the UK to massively expand shale gas drilling and import tens of billions of pounds worth of fuel each year as North Sea reserves run down. They point to lower gas prices in the US that have resulted from the aggressive pursuit of shale resources.
The CCC’s analysis found that investing in renewable energy made sense even if the price of gas was relatively low. Previous analysis by the Department of Energy and Climate Change (DECC) relied on scenarios of large increases in the gas price to make renewables and other forms of low-carbon power, such as nuclear, more economic.
Kennedy told the Guardian: “Not investing in renewables only makes sense if you don’t want to meet our emissions targets – if you tear up the Climate Change Act.”
That is precisely what some on the rightwing of the Tory party would like to do, although the act passed in 2008 with just a handful of no votes. The opponents included Peter Lilley, recently appointed as a senior adviser to David Cameron, although No 10 said his focus would be on foreign policy and not on energy.
A DECC spokeswoman said: “We agree with the CCC on both the need to invest in a portfolio of low-carbon technologies, and the need to reduce our dependence on imported gas which is the main factor driving up household energy bills.
“We recently trebled support for low-carbon technologies to £7.6bn to 2020, and have introduced landmark legislation through the energy bill to incentivise £110bn of investment in clean energy infrastructure, which has the potential to support 250,000 jobs in the energy sector.”
Kennedy said targets on emissions from the electricity sector to 2030 were likely to be needed, in order to spur low-carbon investment by giving companies the clarity and certainty they needed to put money into UK projects.
The government has rejected a target of decarbonising electricity generation by 2030, as had been proposed for the energy bill now on its passage through parliament. Tim Yeo, the Tory former minister, is leading a rebellion on the target, which he wants reinstated, and has gathered at least 45 supporters including the prominent Tories Zac Goldsmith and Sir Peter Bottomley.
Green campaigners welcomed the CCC report. Leila Deen, energy campaigner at Greenpeace, said: “Every MP in British politics should take heed of this report, because in two weeks’ time they’ll be making the biggest changes to the UK’s energy system in a generation when they vote on the energy bill.
“The CCC’s advice is clear: a clean energy system is better for business and better for consumers. George Osborne has ripped a 2030 decarbonisation target from the bill, but with hundreds of businesses and investors crying foul, it’s up to coalition MPs to vote it back in.”
The passage of the energy bill promises to be tempestuous because of the deep divisions within the Tory party on energy and climate change. Yeo said: “This report raises serious concerns about the mixed messages the government has been sending on energy and climate change policy. The energy bill is supposed to deliver billions of pounds of investment in clean energy infrastructure by providing long-term certainty and reducing capital costs, but the Treasury has undermined investor confidence by stripping the legislation of a clear carbon reduction target.”
The IMF’s health check on the UK has concluded that the country is ‘still a long way from a strong and sustainable recovery’
Somehow, in the looking-glass world of Mr Osborne’s Treasury, the IMF’s litany of criticisms counts as relatively good news
The IMF on Wednesday told George Osborne that the UK remains a “long way from … recovery”; that “persistent slow growth could permanently damage medium-term growth prospects”; that, six years on from the collapse of Northern Rock, British banks are still not back to “healthy functionality”; and that the centrepiece of the chancellor’s last budget – the help-to-buy scheme aimed at boosting property sales – would inflate house prices and lock would-be first-time buyers out of the market.
And somehow, in the looking-glass world of Mr Osborne’s Treasury, that litany of stinging criticisms counts as relatively good news.
It was no such thing, of course. But neither did it mark an escalation of the hostilities in Washington last month, when IMF chief economist Olivier Blanchard warned the coalition that it was “playing with fire” by continuing with austerity.
The Fund rarely goes in for such standoffs, especially with a major shareholder (the UK is the fourth-biggest shareholder in the IMF). Particularly not after a delegation had spent weeks alongside Treasury officials conducting their annual health check, and would have shared in advance with senior mandarins the details of their report.
It is also germane to remember that the head of the IMF, Christine Lagarde, is a longtime ally and personal friend of Mr Osborne – and that he was the first major finance minister to support her in the bid for the Fund’s top job.
The great surprise was that the IMF went as far as it did last month, openly criticising the austerity that it is enforcing across southern Europe. Given that the chancellor has made clear that he will not repudiate his signature policy, it was to be expected that the intervention this time would be easier on Treasury ears.
Even so, this was a difference largely of tone, not of substance. As the deputy managing director David Lipton made clear when fielding questions from journalists, the IMF still believes that the government is following the wrong fiscal policy.
It still thinks the coalition ought to be spending more now to support the economy during the almighty bust; and cutting more later, when the economy has recovered somewhat.
In particular, Fund economists believe the UK ought to borrow up to £10bn more this year, and plough that money into public works. Observers can argue the toss about whether such a policy is Ed Balls’s plan B, but one thing is clear: it certainly isn’t the Osborne strategy.
The chancellor could have “back-loaded” the cuts, as the IMF now suggests, but refused – largely to fit a political timetable, with a general election due in 2015. He was backed at the outset by the Fund.
Back in September 2010, it chorused supportively: “The UK economy is on the mend. The [emergency budget] plan is essential to ensure debt sustainability. The plan … supports a balanced recovery.” One of those two bodies has since awoken to harsh reality: sadly, it isn’t the Treasury.
David Cameron was the first major leader to volunteer for austerity, even while Barack Obama was still gunning for fiscal stimulus in America. The comparison between the UK and the US performance is not flattering to the prime minister: our economy has yet to make up the ground lost after the banking crisis; the US has more than made up the lost ground and enjoys a tepid recovery.
As Bill Clinton’s former labour secretary Robert Reich remarked in London this week, up on Capitol Hill they now cite Britain’s experience over the past three years as the epitome of why austerity is a disaster.
One thing this week has shown again is the adeptness with which coalition spinners can play even bad news. There’s a lesson in this for Labour: Ed Balls and co run the risk of critiquing Mr Osborne’s plan A in 2015 even while the UK is making a technical recovery. By the election, the economy could be growing by 2% or more.
The opposition needs to set out the parameters of what a proper recovery would look like: in falling unemployment, rising wages and falling debt. Otherwise, it could look badly off the pace in less than two years.
Firm built to connect far-flung reaches of British empire to relocate from London to Florida
Cable & Wireless Communications, the last remnant of a telecoms empire that once employed 54,000 people around the world, is to leave the UK.
After 140 years as a British company, CWC is relocating its headquarters from Holborn in central London to southern Florida, transferring about 100 jobs to the United States.
CWC will keep its London listing, but the remaining UK ties of a company that was built to connect the far-flung regions of the British empire have been gradually severed.
In 2010 the firm was demerged from its UK network, which was placed in a separately listed company, Cable & Wireless Worldwide. That business was bought by Vodafone last year.
More recently CWC has sold its networks in the Channel Islands, the Falklands and the Isle of Man so that it can focus on operations in Panama and its Caribbean stronghold.
The Bahraini national carrier Batelco has bought the British isles operations, as well as those in the Maldives and Seychelles, and is in talks to acquire CWC’s Monaco business.
As part of its retrenchment to the pan-American region, CWC has also disposed of its Macau network, selling it to Citic Telecom for $750m (£490m).
Chief executive Tony Rice, who has overseen the transformation, will make the move to Florida, where the preferred locations are currently Miami or Fort Lauderdale.
“The group is now focused on a single region with low penetration for data services and strong growth potential where we have scale and market leadership,” said Rice. “This focus will create a more unified, effective and cost-efficient group.”
Assembled from a number of British telegraph companies founded in the 1860s, Cable & Wireless was merged with the Marconi operations in the 1930s and nationalised shortly after the second world war as the government sought to exercise closer control of key strategic assets.
In 1981 it became the first company to be privatised under Margaret Thatcher, and was later the first UK operator to offer an alternative telephone service to British Telecom, via its subsidiary Mercury Communications.
Poor investments slowly whittled away the group’s scale. During the dotcom boom chunks of the family silver were sold, including the One2One mobile phone business (now T-Mobile).
Some £5bn of the proceeds were put into creating a web-traffic carrier by buying internet companies, mainly in the US.
The idea was ahead of its time. Without traffic to fill the brand new fibre networks, price-cutting became ferocious.
In 2003 the firm rang up a loss of £6.4bn, from revenues of £4.4bn. The Caribbean, where Cable & Wireless was on many islands a monopoly provider, was the only part of the business still making a significant profit.
CWC now makes $586m in revenues in Panama and $1.12bn a year from the Caribbean. Its Monaco business generates $236m a year in revenues.
Announcing full-year results on Wednesday, Rice said further job cuts over the coming two years would help create $100m a year of savings.
Eric Schmidt rejects Ed Miliband’s criticisms of tax affairs, saying firm fears being ‘double or quadruple taxed’ under any changes
The Google chairman, Eric Schmidt, has told political leaders to sort out a rational and predictable international tax system, as he faced a wave of criticism over the firm’s failure to pay more tax.
Ed Miliband attempted to deliver his rebuke direct to Schmidt when invited to speak at the Google Big Tent conference, although the US executive missed the Labour leader’s address on Wednesday, saying he had to attend a meeting in London.
Nick Clegg disclosed at a press conference he had also criticised Google at a Downing Street meeting earlier in the week at which Schmidt was present. David Cameron’s aides, after earlier denying the prime minister rounded on Schmidt at that meeting, later briefed that Google had been implicitly rebuked in the context of the prime minister’s general call for greater tax transparency as part of his agenda for the G8 summit next month.
Speaking at the annual Big Tent event after Miliband had left, Schmidt said one of his key concerns about changes to the tax structure was that Google might be “doubly or quadruply taxed”.
Asked by Labour MP Stella Creasy how he would reform the tax system, he suggested: “Have a rational system that’s predictable and doesn’t change very much.
“Virtually all the American companies have tax structures like this, and UK companies operating in the US do too. But if we pay more taxes in one area, then we pay less in another.
“Google feels very, very strongly that tax information, tax policy should be done openly. I don’t think companies should decide tax policy, governments should … we’re in a very long-standing tax regime … we need to have a conversation about this, we’re not trying to do the wrong thing, we’re trying to do the right thing.
“We don’t want to be in a situation where we get double or quadruple taxed.”
Asked how he would cope if Miliband were to come to power and, as promised, stop transfer pricing, Schmidt said: “If he does – if he does so, we will follow the rules.” Transfer pricing involves firms shifting profits between countries.
Schmidt also said Google would continue to invest in the UK, no matter what tax regime was in place: “We love you guys too much. We will continue investing in the UK no matter what.”
He rebuffed Miliband’s suggestion there was a distinction between the letter and the spirit of the law. “You’ll have to define the difference,” he said to a barrister who challenged him to say whether Google would comply with the “spirit” of the tax laws, which might then lead to it being taxed more. “We’re governed by US securities laws – in that scenario it might be seen as incompetence,” added Schmidt.
Earlier Miliband told the meeting of the firm’s staff that he was “disappointed” it had paid £6m in corporation tax on UK sales worth £3.2bn in 2011. Most of Google’s profits are routed through Ireland. Miliband said the US company’s employees expected it to do the “right thing”, as its motto was “Don’t be evil.”
He said: “I can’t be the only person who feels deeply disappointed that a great company like Google, with great founding principles, should be reduced to arguing that when it employs thousands of people in Britain, makes billions of pounds in revenue in Britain, it is fair that it should pay just a fraction of 1% of that in tax.
“So when Google does great things, I will praise you … But when Google goes to extraordinary lengths to avoid paying its taxes, I say it’s wrong.”
Labour rejected Schmidt’s explanation, saying Google has been making sales to UK customers from its UK staff, but pretending the transactions were being made from Ireland so the firm could register the profits as made in Ireland rather than the UK.
Booking those sales in the UK would not mean taxing profits twice – just taxing them in the UK, not Ireland.
Even after profits were shifted to Ireland, Google avoids paying 12.5% corporation tax there by switching the surpluses to tax havens such as Bermuda, according to a Reuters investigation.
This is done by using two Irish firms, (hence the name, “double Irish”) one a tax resident in Bermuda and owning the intellectual property of the company. The offshore firm then charges the onshore one royalties, which shifts the profits out of Ireland and into Bermuda.
By doing so Google would not be taxed on the same profits in different countries; it is shifting profits between tax jurisdictions to avoid paying tax.
Clegg told a press conference in London on Wednesday morning: “My overall approach to tax is the obvious one. I put this directly to Eric Schmidt from Google and other business leaders at a meeting in Downing Street a couple of days ago.
“We are bringing the tax burden on corporations down by lowering the rate of corporation tax but in return people have to pay their fair share.”
He said tax havens were symptoms of the growing pains of globalisation. “You have got tax systems that are national rooted in an old economy, and now we have got these new corporate goliaths that operate in this disembodied way particularly in the digital sector, that quite unsurprisingly think they can exploit the best deal for themselves in the cracks and crevices between the national tax systems.”
After two weeks scrutinising the UK economy, the International Monetary Fund has called on the government to do more to speed up the recovery
Soros investment vehicle Quantum Strategic Parters injects £50m in fibre-optic company Hyperoptic
Financier George Soros has led a £50m investment in fibre-optic company Hyperoptic, which lays high-speed lines direct to UK homes.
The funding, from the Soros investment vehicle Quantum Strategic Parters, will help Hyperoptic reach its target of 500,000 homes within the next five years.
Its “hyperfast” lines transmit information at 1 gigabit per second, which is more than 80 times the UK broadband average of 12 megabits per second, and the company has already reached 20,000 homes in London. Hyperoptic plans to bring its service to 10 additional cities by the end of the year, with locations driven by demand from consumers.
As part of the investment, two directors from Soros Fund Management, Waldemar Szlezak and Joshua Ho-Walker, are joining the Hyperoptic board. Soros, best known for currency trading, has more recently made a series of telecoms investments, from mobile towers in Africa to backing Irish entrepreneur Denis O’Brien’s bid to run a network in Burma.
Hyperoptic was founded in 2010 by entrepreneurs Boris Ivanovic and Dana Tobak, who created the UK internet service provider Be, which was sold to the O2 mobile network for £50m in 2006, and is now part of BSkyB.
While BT is installing fibre to street cabinets across the country, it relies on copper from cabinet to the home, which can reduce speeds. Fewer than 1% of UK premises are directly plugged into fibre lines, according to the Fibre to the Home Council Europe, compared with 50% in Japan and 10% in the United States.