Tears Of A Clown!                                                                             24 May 2024

Knight Frank has indicated that global high net worth individuals are expected to spend 76% more, on the year, to US$ 4.4 billion buying in the burgeoning Dubai property market in 2024. There seems to be no respite in the demand for luxury homes in the emirate, despite ongoing double-digit growth. The consultancy projects that GCC-based resident HNWIs are projected to spend US$ 3.1 million to buy a house in Dubai while the global ultra-rich will allocate US$ 36.5 million on average on property deals. Faisal Durrani, head of  the firm’s ME research commented that, “the level of interest to invest in Dubai rises with the level of personal wealth growing, from 28% for those with US$ 2 to US$ 5 million, topping out at 70% among those worth more than $15 million”. Top purchase locations include Dubai Marina, Downtown Dubai, Business Bay, Dubai South/Expo City, Dubai Canal, Dubai Hills Estate, Palm Jumeirah and Jumeirah Bay Island. Q1 prices of Dubai prime residential properties, valued at US$ 10 million plus, rose 18.2% on the year, with overall prices increasing by 20%. Its 2024 forecast, which to this observer is too conservative, is for overall residential prices to rise by 3.5% and prime properties by 5.0%.

Omniyat announced that it had sold a four-bedroom penthouse at the newly opened The Lana Residences, Dorchester Collection for US$ 38 million, making it the most expensive property in the Burj Khalifa district. It spans nearly 16.6k sq ft, overlooking the Marasi Marina between the Burj Khalifa District and the Dubai Design District. The latest Knight Frank report shows that fifty-six properties, with a value of over US$ 25 million, were sold in Dubai last year, with a further twelve sold in Q1.

Latest data from the Dubai Land Department indicates that occupier activity remained robust in Q1, with the total number of rental registrations reaching almost 46.9k, registering an increase of 35.8% on the year. CBRE noted that “this headline growth has been largely underpinned by a 51.1% increase in new rental registrations, which totalled 34.5k. Renewed contracts posted a total of 12.4k, marking a 6.1% growth from the previous year.” Despite the lack of supply, free zone locations are still capturing a substantial share of market activity. To cater for this rising demand, developers are fast-tracking future developments across a range of free zone and non-free zone locations. The robust levels of demand continued to be seen in the UAE’s occupier market in Q1, largely driven by the strong levels of economic growth that continue to attract occupiers to the country. The average Q1 occupancy rate, within this market segment, nudged 1.2% higher on the year to 91.3%. In the period, the average Prime, Grade A, Grade B, and Grade C rents registered year-on-year increases of 7.6%, 17.9%, 21.6%, and 16.8%. Average Prime Grade A, Grade B and Grade C rental rates reached US$ 69.48, US$ 52.32, US$ 44.14 and US$ 35.69 per sq ft, respectively, as at Q1 2024.

2023 was a very successful year for Dubai World Trade Centre that saw it generating a total economic output of US$ 4.98 billion from seventy-six large-scale exhibitions, international association conventions and industry conferences (of the overall total of three hundred and one exhibitions and events). It is estimated that these events added US$ 2.87 billion to the GDP, equating to 58% of the total economic output being retained within the local economy, whilst fostering 69.3k jobs and generating US$ 916 million in disposable income. The notable 53% annual increase in international participants yielded significant contribution to Dubai’s GDP, with an average participant spend of US$ 2,810 per event, which is 6.2 times higher than that of local participants. The large-scale business events attracted 1.54 million attendees, with 46% being international attendees – 53% higher on the year. Helal Saeed Almarri, Director General – DWTC Authority, said “the increase in international participation, along with the significant economic impact generated across diverse sectors such as travel, accommodation and retail, highlights the city’s steadfast commitment to propelling business tourism.” Direct revenue generated through expenditure, in adjacent sectors, reached over US$ 2.95 billion. The key sectors in the domestic economy that benefited were hotel accommodation (US$ 807 million, up 54%), air travel/local transport (US$ 719 million, up 20%), retail (US$ 537 million, up 71%), restaurants (US$ 466 million, up 51%), and business entertainment (US$ 357 million, up 27%). The success of DWTC’s own events and exhibitions, such as GITEX Global and Gulfood, generated US$ 1.97 billion in economic output and US$ 1.13 billion in GVA – a 53% increase over 2022.

Q1 saw Dubai International Airport handle over twenty-three million passengers, becoming its “busiest quarter in history”, and 8.4% higher on the year. In 2023, handling almost eighty-seven million passengers, the airport surpassed its pre-coronavirus annual total, with a 31.7% hike in numbers and is well on its way to top ninety-one million this year. The main drivers behind these impressive returns are the global rebound in air travel and that both Emirates and flydubai have boosted their network operations – and this despite geopolitical tensions, a shortage of Boeing planes and inflationary pressures. Last year, EK carried 51.9 million passengers, 19% higher on the previous financial year, while its seat capacity increased by 21%; flydubai carried nearly five million passengers between January and April 2024 – up 13% on the year.

The DFM opened the week on Monday 20 May, 105 points (2.5%) lower the previous week shed 43 points (1.4%) to close the trading week on 4,013 by Friday 24 May 2024. Emaar Properties, US$ 0.19 lower the previous four weeks, gained US$ 0.07, closing on US$ 2.13 by the end of the week. DEWA, Emirates NBD, DIB and DFM started the previous week on US$ 0.63, US$ 4.54, US$ 1.51, and US$ 0.36 and closed on US$ 0.63, US$ 4.28, US$ 1.50 and US$ 0.35. On 24 May, trading was at two hundred and forty-five million shares, with a value of US$ 101 million, compared to two hundred and twenty-one million shares, with a value of US$ 111 million, on 17 May 2024.

By Friday, 24 May 2024, Brent, US$ 3.08 higher (0.1%) the previous week, lost US$ 4.00 (4.7%) to close on US$ 81.86. Gold, US$ 111 (4.8%) higher the previous fortnight, shed US$ 80 (3.3%) to end the week’s trading at US$ 2,334 on 24 May 2024.

As Boeing flies from one crisis to another, seemingly on a regular basis, it does seem odd that not only have shareholders signed off a 2023 US$ 33 million pay-out to outgoing boss Dave Calhoun, but also to keep him as a Board member, as he leaves his day job this October; in 2022, he was paid almost US$ 23 million. When the board chairman Steve Mollenkopf was asked how the compensation for Mr Calhoun and others were “justified”, given the severe challenges now facing the company, he commented that some 2024 executive awards had been reduced after the Alaskan Airlines incident and that in future product safety has been given the primary weight in determining performance, instead of financial factors – such as cash flow and share price – as had been the case previously. He also mentioned that “the months and years ahead are critically important for our company as we take the necessary steps to regain the trust lost in recent times.” Last week, this blog noted that the US Department of Justice said it was considering whether to prosecute Boeing over deadly crashes involving its 737 Max aircraft in 2018 and 2019. There are some who consider that both the chairman and the chief executive are very lucky to still have a job with Boeing – and picking up handsome bonuses in the process.

No doubt helped by raising its fares by 21%, to an average US$ 54.11, in most cases, Ryanair has reported a 34.0% rise in full-year profits, to US$ 1.92 billion, but the budget airline indicated that peak summer prices will only be “flat to modestly ahead” of last year. It also confirmed that there would be a shortage of about twenty-three Boeing 737s, that were due to be delivered by the end of July, because of the supply problems at Boeing; supremo Michael O’Leary estimated that if it had a complete fleet, it could have carried two hundred million passengers, (last year it carried 183.7 million passengers). The carrier said it was continuing to work closely with the aerospace giant to improve quality and increase the pace of deliveries. Whilst acknowledging that the carrier would receive compensation for these delays, O’Leary said it would be “modest” and did not reflect the cost to the airline of having to cut back its growth plans.

What the aviation world needs is an extra plane maker to challenge the current duopoly of Airbus and the embattled Boeing to add more planes to the global portfolio. Shanghai-based plane maker Comac is positioning the C919 as a viable alternative to the Airbus A320neo and Boeing’s 737 Max as the two plane makers struggle to meet demand for new aircraft, and Boeing battles a series of crises. It is reported that Saudia Group has offered the plane maker the chance to establish an assembly line in Jeddah, with the national airline also in discussions with the Chinese company to understand the specifications of the C919 narrow-body jet. The maintenance, repair and overhaul complex, covering about one million sq mt, is set to be completed next year and expected to house the manufacturing operations of global aerospace companies. It seems to be a win-win for both Saudia and Comac – the former to expand its domestic manufacturing sector to diversify its economy away from hydrocarbons, whilst the latter would benefit from expanding its manufacturing base and to establish a presence in the ME’s fast-growing aviation sector.

Once valued at over US$ 9.60 billion, Cazoo, the British online car retailer, has gone into administration this week, with the appointment of insolvency practitioners from Teneo to proceed with the process. To date, more than seven hundred employees have been made redundant but some at the New York-listed firm have been retained to operate the remaining marketplace model while they explore a sale. At the beginning of the week, the group’s wholesale arm was sold to G3, another industry player, with Constellation Automotive, the owner of Cazoo’s rival, Cinch, also having acquired a number of assets. There seems to be interest from a number of players, including BMW, Motorpoint, Motors.co.uk and Car Gurus.

One casualty from Getir’s decision to exit the UK market is Tottenham Hotspur Football Club, being owed over US$ 6.0 million. The Turkish grocery delivery app had a three-year training kit sponsorship deal with Spurs, expiring last Sunday which was the end of the EPL season. News of the outstanding debt comes as Getir tries to access a tranche of agreed funding from its major investors, Mubadala and G Squared, to help facilitate its withdrawal from the UK, Germany and the Netherlands. It leaving the UK would leave 1.5k unemployed and it is yet unknown whether it will be able to pay any of its current liabilities. The firm was once valued at over US$ 12.7 billion.

Mondelez is the latest food supplier accused of “shrinkflation”, where prices are kept the same but content reduced; in this case, the number of Ritz crackers per box has been reduced by up to 30%, but the price has remain unchanged. The size difference was first highlighted by The Grocer and confirmed by Mondelez, which owns the Ritz brand. The 200 gm packs of Original and Cheese crackers have now been replaced by packs, weighing 150g and 140 gm, whilst the prices remain at their historic price. The manufacturer, in confirming the size change, added that “we understand the economic pressures that consumers continue to face and any changes to our product sizes is a last resort for our business,” they said, adding that the food producer is experiencing “significantly higher input costs” across its supply chain as ingredients cost far more than they had previously, with other overheads – such as energy, packaging and transport – also higher. A blog earlier in the year, (‘Fool Me Once, Shame On You’ – 26 January) noted:

“One of the UK’s well-known food suppliers, Premier Foods, is planning to cut prices on more of its products, including Mr Kipling, Bisto and Angel Delight. Latest figures indicate that food prices are rising less quickly, with Premier planning to increase prices of own-brand products – this sector had seen marked growth attributable to surging food prices, as food inflation figures topped 19% only ten months ago in March 2023; last month, it had dropped to 8.0%. The company started lowering prices in Q4 and noted that discounts had helped it to report strong trading over Christmas, with group sales up 14.4% on the year”.

According to Which?, other products facing shrinkflation included:

• Listerine Fresh Burst mouthwash shrank from 600ml to 500ml. At Tesco it also went up in price by 52p
• PG Tips Tasty Decaf Pyramid tea bags went from containing 180 bags to 140 at a number of supermarkets
• Kettle Chips Sea Salt and Crushed Black Peppercorns Crisps shrank from 150g to 130g at Tesco
• Yeo Valley Organic Salted Spreadable went from 500g to 400g at Sainsbury’s and Tesco

Having concluded an alternative restructuring, FPR Advisory, Body Shop’s administrators, found it not viable and will launch an auction of the iconic high street retailer. Following a recent shop closure and redundancy programme, Body Shop, founded in 1977 by Anita Roddick, currently trades from about one hundred stores and did have interest from Next before Aurelius, the investment firm, took control of it only weeks before administrators were called in; it had acquired the chain from Natura & Co, a Brazilian company, which was reported to have paid more than US$ 1 billion to buy it in 2017. It was reported that the new owner was confronted with an immediate short-term cash flow position, which was adverse to what had been forecast, driven by poor results in the 2023 financial year and the unwinding of the company’s working capital. Aurelius is understood to have continued financing the business during the administration process. The Body Shop’s businesses, across most of Europe and parts of Asia, had already been offloaded to a family office prior to the insolvency of the UK arm.

A US Congressional report points to BMW, (including 8k Mini Coopers), Jaguar Land Rover and Volkswagen having used parts made by Sichuan Jingweida Technology Group, a supplier on a list of firms banned over alleged links to Chinese forced labour. Senate Finance Committee Chairman, Ron Wyden, noted that “automakers’ self-policing is clearly not doing the job,” and also urged the US Customs and Border Protection agency to “supercharge enforcement and crack down on companies that fuel the shameful use of forced labour in China.” JLR has now identified the banned imported spare parts and is destroying any such stock it holds around the world, whilst VW had voluntarily informed customs officials about the issue, noting that thousands of its vehicles, including Porsches and Bentleys, had been held by authorities because they had a component in them that breached America’s anti-forced labour laws. Congress had passed the Uyghur Forced Labor Prevention Act law in 2021 that was intended to prevent the import of goods from China’s north-western Xinjiang region that are believed to have been made by people from the Uyghur minority group in forced labour conditions.

Live Nation, the owner of Ticketmaster, is being sued by the US Justice Department over claims it is running an illegal live event “monopoly” which is driving prices up for fans and pushing out smaller competition. It claims that they are squeezing out smaller promoters by using tactics such as threats and retaliation The accused countered that it will defend itself against “baseless allegations” and claims the lawsuit would not solve ticket price or availability issues. Filed yesterday in a Manhattan federal court, the sweeping antitrust lawsuit was brought with thirty state and district attorneys-general. The US Attorney-General Merrick Garland commented that “it’s time for fans and artists to stop paying the price for Live Nation’s monopoly,” and “it is time to restore competition and innovation in the entertainment industry. It is time to break up Live Nation-Ticketmaster. The American people are ready for it.” Ticketmaster, which merged with Live Nation in 2010, is the world’s largest ticket seller across live music, sports, theatre and more. The company said it distributed more than six hundred and twenty million tickets in 2023.

Diplomats owe more than US$ 182 million to Transport for London for unpaid congestion charges, led by the US and Japan owing a reported US$ 18 million and US$ 13 million respectively; at the other end of the scale, Togo owes just US$ 51. The TfL commented that “we and the UK government are clear that the congestion charge is a charge for a service and not a tax – this means that diplomats are not exempt from paying it”. A spokesperson for the US Embassy in London said, “in accordance with international law, as reflected in the 1961 Vienna Convention on Diplomatic Relations, our position is that the congestion charge is a tax from which diplomatic missions are exempt. It appears that “the majority of embassies in London do pay the charge, but there remains a stubborn minority who refuse to do so, despite our representations through diplomatic channels”. The scheme involves a US$ 19 daily fee for driving within an area of central London between 07:00 and 18:00 on weekdays, and between noon and 18:00 on weekends and bank holidays.

A World Bank report, published this week, noted that the percentage of the Lebanese population living below the poverty line had more than tripled from 12% in 2012 to 44% in 2022, as overall prices jumped fifteen times higher over the decade. The World Bank found the spread of poverty was uneven throughout Lebanon and is increasing quickly in the northern regions. For example, the poverty rate in Beirut is 2%, but it rises to 62% in Akkar which has a significant agricultural workforce who are among the poorest in the country, followed by those who work in construction. The situation is made worse by a plummeting currency that lost 98% of its pre-crisis value by last December, having remained in triple digit territory since 2021.

A study of ten water and sewage firms in England and Wales bythe University of Greenwich has concluded that shareholders in some of the UK’s largest water companies, including Thames Water, United Utilities and Severn Trent, have taken out US$ 108.3 billion in dividends but failed to invest. It said that between privatisation in 1989 and 2023, money invested by shareholders in the largest firms shrunk by US$ 7.0 billion, when adjusted for inflation. Over the same period, the amount of “retained earnings” – profits left over once things like dividends have been paid out, that can be used to invest in a business – had dropped by US$ 8.52 billion in real terms. Ofwat, the industry regulator, said it “strongly refuted” the figures.  “While we agree wholeheartedly with demands for companies to change, the facts are there has been huge investment in the sector of over US$ 254.0 billion.” Water UK, which represents the industry, said investment in the sector was “double the annual levels seen before privatisation”. Water and sewage firms want to spend around US$ 127.10 billion over the next five years.

As can be seen from the table below, Southern Water is asking for the biggest jump of 91%, according to the Consumer Council for Water. It is owned by Australian firm Macquarie which has faced fierce criticism for the period when it was Thames Water’s biggest shareholder. In five of the ten years, it owned Thames, the company paid out more in dividends than it made in profits, while debt rose from US$ 3.18 billion to over US$ 12.71 billion in the same period.

The following table lists the details of water firms’ requirements, with increases between 29% to 91%.

• Southern Water – 91% increase to £915 a year by 2030
• Thames Water – 59% to £749
• Hafren Dyfredwy – 56% to £676
• Severn Trent – 50% to £657
• Wessex Water – 50% to £822
• Yorkshire Water – 46% to £682
• Dŵr Cymru – 43% to £702
• United Utilities – 38% to £666
• South East Water – 35% £330
• Pennon – 33% to £644
• Portsmouth Water – 31% to £157
• SES – 30% to £315
• Anglian Water – 29% to £682
• Northumbrian Water and Essex & Suffolk Water – 26% to £530
• Affinity Water 25% to £294
• South Staffs & Cambridge Water – 24% to £221

Source: Consumer Council for Water

Even though UK food prices are slowly returning to “more normal” rates, currently down to 2.4%, it seems that many shoppers are still seeking out cheaper own-brand goods. Research firm Kantar noted that price inflation – the rate at which prices increase – was at its lowest rate since October 2021. Under normal circumstances, it would be expected that 3% inflation is a threshold which over that figure shoppers would start to trade down to cheaper items to save money and vice versa when the level heads below the 3% mark.  Because the market has seen over thirty months of high prices, it appears that it is taking a little longer for shoppers to adjust back to their previous shopping habits. It must be remembered that although overall inflation peaked at 11.1%, in late 2022, food inflation was at a rate of almost 20% last year – the highest since the 1970s. Meanwhile, Kantar reckons that “own-label lines are proving resilient, for example, and they are still growing faster than brands, making up over half (52%) of total spending,” whilst sales of premium own-label ranges remained popular, up by 9.9% from a year earlier.

The Office for National Statistics posted that April retail sales fell a marked 2.3%, as official figures show that wet weather once again put shoppers off. Sales volumes fell across most sectors, with the biggest impact being felt in clothes shops, sports equipment, games/toys stores, and furniture shops doing badly as poor weather reduced footfall. A greater proportion of sales happened online, though the volume of orders declined. Retail sales is the largest expenditure across the UK economy.

Falling gas and electricity prices have driven UK inflation to its lowest level in almost three years. Prices rose at 2.3% in the year to April, down from 3.2% the month before – a figure that is fast approaching the BoE’s 2.0% target. Falling inflation does not mean the prices of goods and services overall are coming down, it is just that they are rising at a slower pace. The major factors pushing prices lower included energy prices, (27% lower on the year – including gas which fell 38%), declining tobacco, food, (milk, butter, poultry and fish), which were partially offset by rising costs of mobile phone bills, rents, olive oil, cocoa and crisps. Prices for all goods – ranging from food to household appliances – decreased marginally by 0.8% in April but services inflation, which measures price rises for things such as haircuts or train tickets, remained elevated at 5.9%.

It has been a bad week for the trustworthiness of UK politics, starting, on Monday, (with the Sunak administration having to admit that successive governments, from the 1980s had shown lack of openness  and elements of “downright deception”, including the destruction of documents), relating to more than 30k people in the UK being infected with HIV and hepatitis C, after being given contaminated blood products in the 1970s and 1980s. The inquiry chairman Sir Brian Langstaff also added half-truths were also told, so people did not know about the risk of their treatment, the availability of alternatives, or even whether they were infected adding that “the disaster was not an accident, “and that those in authority — doctors, the blood services, and governments — committed the ultimate folly in healthcare and healing: they “did not put patient safety first”. The six-year-long inquiry uncovered a coverup that was “more subtle, more pervasive, and more chilling in its implications” than an orchestrated conspiracy. It was undertaken “to save face and to save expense”. The calamity was made more catastrophic by the “defensiveness of government…and its refusal over decades to hold a public inquiry.” A public inquiry has described the scale of the scandal as “horrifying” and accused doctors, the government and NHS of repeatedly failing patients. The government says a final compensation scheme is being set up, and that some victims will receive interim payments of US$ 268k from the summer onwards.

Then there is the ongoing Post Office enquiry which could eventually cost the taxpayer upward of US$ 125 billion. This week saw the ex-chief executive, Paula Vennells, spending three days in the witness stand for the first time in nine years. Not the most popular person in the country, her presence was full of self-justifications and continually insisting that she had not put the Post Office above the cases of sub-postmasters was a recurrent theme. When she told the enquiry “my only motivation was for the best for the Post Office and for the hundreds of postmasters that I met, and I regret deeply that I let these people down,” Sam Stein KC told her she was talking “absolute rubbish”. She has been accused of being in “la la land” and told an answer was “humbug”, watched on by some of the hundreds of sub-postmasters wrongly prosecuted by the Post Office. She was acutely aware of the PR risk to the organisation, and that she listened to advice from her communications staff, concluding that brand was of prime importance. What was evident from her presence this week was to show her complete ignorance of many factors impacting the Post office and her obsession with spin, public relations, media management, and the Post Office’s reputation being placed over and above concern for sub-postmasters.

During her seven year tenure as chief executive, hundreds of sub-postmasters were sent to jail based on flawed evidence thrown up by the Post Office’s Horizon IT system. Her defence that despite her experience, she just did not know; likewise, she did not know that there were bugs in the Horizon system, (before she became CEO), that branch accounts could be accessed remotely, and that the Post Office carried out its own prosecutions. An indicator that the good lady may have been lying on several occasions concerned her 2013 suggestion that the Post Office conduct a review of all false accounting cases over the previous five to ten years. Her PR guru, Mark Davies responded, “if we say publicly that we will look at last cases… whether from recent history or going further back, we will open this up very significantly into front page news. In media terms it becomes very mainstream, very high-profile.” “To what extent did what Mr Davies advice here affect your decision-making?” she was asked. “I would never – it was simply not the way I worked,” she said. Mr Beer then produced her reply to Mr Davies: “You were right to call this out. And I will take your steer, no issue,” she wrote. What maybe her swansong was when asked about a 2013 board meeting: “My recollection,” she said, “is that I don’t recall.” On many occasions over these three days, Paula Vennels broke down in tears but many of her “victims” think that were only crocodile tears, in a futile attempt to show herself as a considerate and caring person. To others, they were Tears Of A Clown!