Effects of the financial crisis on various UK industries

Effects of the fiscal crisis on various UK industriesEconomic ReportThe above interpret registers the FTSE 100 great power in the 5 eld to the 14th October 2010. The exponent value at any particular time is based on the lot prices of the top maven hundred by value with each organisation being weighted in proportion to its total food market value (Pike, Neale, p.38 2009). despite this index only being a small percentage of the total companies in the United Kingdom it generally reflects the performance of much of the market.Prior to the financial crisis of 2008 leading to the crash in the markets-shown in the first buttocks of 2009-investment in political relation debt was regarded as relatively risk free. It is a sign of the fragile preservation situation world(prenominal)ly that investors no longer view such investments as a sure thing (Oakley, 2010). This recognise crisis has prompted investors to proceed with caution and despite sign positive tr terminals the princip les which underpinned investments in the outgoing have been shattered resulting in large scale political reforms throughout much of the Western World (Future of investing, FT). The suggestion of an shivering recovery is reinforced by a recent article in the Economist which states that,Big asset busts argon usually followed by long time of failing as the over-borrowed repair their balance-sheets. Experience suggests that several course of instructions of slow harvest lie ahead.Oct. 7th 2010It goes on to state that the reactive measures provide be the biggest synchronized fiscal tightening on record. Governments worldwide have had their hand forced in to budget cuts and other measures to sustain growth out of the crisis. Whilst this statement points to and assures misgiving should be highlighted that growth albeit at a slow pace is thought to be plausibly.The rate of move scotch situation, specifically in the United Kingdom, is underlined by the spacious growth in unemploy ment. Gil more(prenominal) comments that the weigh of workless households has step-upd to 3.9 million over the last two years an increase of 389,000 (2010, p 39). Furthermore, high profile cutbacks remain everyday with Boots and Hewlett-Packard announcing combine cuts of 2,200 workers in the UK al champion (Clark, 2010 Felsted 2010). Whilst over the past two years in that location has been an overall escalation in unemployment there ar few signs of improvement. The three months to July 2010 witnessed the upshot out of employment fall to 2.47 million (Gilmore, 2010).It can be said that the current times are very uncertain and on that account the compensate investment strategy volition be vaguer than ever before. For that reason, the general investment strategy which will be employed is buy and hold. Not all investments will be made in this manner, nevertheless, for the most part this logic will be applied. The buy and hold approach can be justified by sceneing at the ma rket trend since the FTSE 100 began in 1984It can be seen that after a dip such as in 1987 and in 2000 that the market tends to recover so despite the fragile economic situation a recovery, albeit a slow one as mentioned previously, can be envisaged. firmament Reviews domain PowerThe bureau sphere of influence is one of the main constituents of the FTSE 100. Utilities and Oil Gas alone make up 14 of the 104 constituents which complete the index, together find out for nearly a quarter of the net market capitalisation for all the industries included. It can therefore be deduced that any reasonable change in the power field as a whole has a great influence on the performance of the top one hundred FTSE listed companies (FTSE Fact Sheet, 2010).For consideration, the sphere has been set out in to three main sub-sectors mine, water utilities and oil gas. All three sub-sectors witnessed their three year minimum around 2009 and have recovered strongly since with one exception to be covered in more detail oil gas.MiningThe recovery can be expected to continue in the mining sector as commodity prices continue to rise. One of the major(ip) mined commodities, gold, has seen prices soar in recent times increasing nearly six plication since 2001 (Post1, 2010) to its current levels of $1361.20 per ounce. The market expects this price will continue to rise amid speculation that the United States government will commence quantitative easing once more (Murchie, 2010). Barrick Gold and Anglo Gold Ashanti have recently raised equity to eliminate bad hedges and does not expect to return to hedging at any price (Yahoo Finance, 2010). Thus, both organisations expect the price of gold to continue to rise therefore gold companies with proven reserves are likely to increase in value. This possibility is reinforced by a Goldman Sachs analyst, writes Alistair Dawber, who predicts that Gold will correspond $1,650 within a year (Independent, 2010).Water and UtilitiesWater and Utilities in the United Kingdom show a strong recovery after the first quarter of 2009 in addition receiving boosts from an exceptionally cold winter. Profits of ScottishPower rose 7.9% last year ascribable to the bitingly cold winter and Britains biggest supplier of gas and electricity witnessed profits soar 46% to 554 million (Macallister, 2010). The Met office commented that it had been the coldest winter in thirty years (2010). large term forecasts predict that this winter will be colder than average with more precipitation than would be the norm. Should this hold true then share prices will increase on the back of high demand for gas and electricity which eludes to the sector share prices to trend upwards.Oil and GasThe first graphic representation shows the FTSE 350 index for Oil and Gas producers. A prolong recovery from the low in late 2009 was seen until Q2 of 2010 which observed a sharp decline. This deterioration is largely due to the Deepwater vista disaster and it s effects are clear. BP (formerly British Petroleum) are the second largest company in the FTSE 100 index (FTSE Fact Sheet, 2010) so any change in share price will have a large influence on both the sector and the whole economy. The second graph shows the correlation amidst the BP share price and the FTSE 350 Oil and Gas. The cost to BP, who are regarded as being ultimately responsible for the disaster, gists to a pre-tax charge of $32,192 million. This make out relates to all costs sustained in relation to the Gulf of Mexico oil spill and the commitment to cover any future costs which BP feel they can estimate reliably (BP, 2010). As the cost of the disaster has already been absorbed by the company and the markets, assuming there is no further outfall, it can be expected that the market will continue to trend upwards and back towards its previous average. On this basis, the sector can be considered as a relatively safe investment.There is potentiality for very large returns wi thin this sector however they arise with considerable risk. Those with a higher risk appetite may seek to invest in the companies partaking in the oil exploration taking place in the Falkland Islands.InvestmentDue to the positive nature of all three sectors in this uncertain economic arrest it has been decided that all three sub-sectors outlined will provide investment opportunities. This facilitates potential for excellent gains but at the equal time it utilises one of the main strategies for managing risk, diversification (Jaeger, 2002, p.235).Sector Transport and LeisureTransport and leisure is a b alley ranging sector including companies such as Babcock International Group who specify in a wide range of field of forces including defence to organisations such as First Group who are a leading transport operator in the UK and North America (First Group). As it is such a broad sector transport and travel and leisure will be combined due to the equivalent nature of the two sub-s ectors. Food drunkennesss has been discounted for ethical reasons.Aerospace and DefenceAs much of this sub-sectors r stillue comes from government expending, Aerospace Defence at first appeared to be a sharp choice for investment although on closer inspection this was proved not to be the case. This sector was eventually discounted largely due to the expected cuts in government spending in the United Kingdom and abroad which will have an influence on companies which rely on this spending to maintain profitability and current share price levels. For practice session, Babcock International Groups revenues are 80% U.K based (Hoyos, 2010) which in the current climate is too much exposure to a single market. The FTSE 350 index Aerospace and Defence shows the volatility across the sector throughout 2010.Automobiles and PartsOutside of the main organisations in this sector there is only comparatively small amount of information available outside of the major companies. Where the maj ors are concerned, a case could be constructed for investment however these are outweighed by the potential risks. In recent times there has been many disrupting events which have an effect on the volatility of share prices within the sub-sector. Three major car assemblyrs, including one work in the UK-Toyota, have announced large scale recalls. Toyota was forced to recall 10.9 million cars in the US and Canada (Simon, 2010) whilst both BMW and Dailmler AG have recalled a combined 698,800 vehicles. (Sky News, 2010)(WSJ, 2010). As well as the turbulent recalls demand for new cars in the UK has fallen and it is not expected that they will return to peak levels. Between 2007 and 2009 the amount of new cars purchased fell from 2.4 million to 1.9 million-of which 285,000 were purchased at a intemperately discounted level under the Governments scrappage scheme (Sky News, 2010). The article goes on to state that sales figures are not expected to increase above 2 million for the succeedi ng(a) three years which would allude to a levelling of share prices at current levels.Food and BeverageThe low which the FTSE 350 Food and Beverage experienced in March 2009 coincided with the bottom of the FTSE100, however, the dip was not as severe and the immediate recovery was swift and strong. Whilst these are promising signs there has been a stagnation. In Q2 and Q3 of 2010 the index has fallen from its high of 541.81 in mid April to a its current level of 528.69 (Yahoo finance, 18th October). In the same period the FTSE 100 after suffering from an initial drop recovered strongly and is now showing a positive growth curve in the short term. It can be concluded that the performance of the sector as a whole is not matching that of other sectors which are performing well. An example of a poor performer in this sector would be Punch Taverns which is one of the largest pub companies in the United Kingdom (Punch Taverns, 2010). Shares in Punch Taverns are down over 15% in the last 52 weeks (Interactive Investor Trading, 2010).Travel LeisureA graph of the FTSE 350 index over the previous 5 years is shown. It can be seen that from its peak in 2007 there has been a huge loss in market capitalisation across the travel and leisure sector however this was met with a strong recovery from mid 2009 onwards and this trend looks to continue. The upwards movement of this index is underpinned by growth in many of the major companies in the sector such as British Airways, Ryanair Holdings and Easyjet. This shows growing investor faith in one of the most troubled industries of the past 10 years.InvestmentIt is this confidence and steady sustained growth within sub-sector four that makes the Travel and Leisure sub-sector the advised choice for investment however the other sectors will provide some potential for investment should an appropriate company be identified.RetailersUK retail sector employees around 3 million people. It is the 3rd largest in the world after regula r army and Japan. On a whole the retail sector generates around 8% of the UK GDP. 1 in 10 of the people in employment currently whole caboodle in the retail sector. Shops account for more than a third of consumer spending due to this the retail sector is very important to how the economy on a whole performs. Usually if there is a drop in retail, the GDP of the economy would be affected greatly as well.The year 2007 marked the root word of the credit crisis which resulted in the UK facing an economic downturn. This affected many companies, including Wool worthys. Woolworths before the credit crisis was one of the major companies in the retail sector. Due to the crisis, which lasted from 2007-2009, Woolworths went into administration on the 26th November 2008. During late 2009 market the end of the period of the recession, which allowed the retail sector to improve its growth, as shown in the graph below.InvestmentThe retail sector is idol because of its high growth before the cred it crisis, this sector is now quickly recovering and should be expected to be at a high growth as before the credit crisis. There should be high growth especially during the Christmas period.The House leisure Personal Goods sector would be an inappropriate plectrum in my opinion because it involves lots of manual and material costs. This sector will likewise gain lower growth unlike the retail sector, which should have higher growth.TelecommunicationsThe telecommunication sector offers a wide variety of jobs and is an important sector for the economy. The UK is one of the leading locations for telecommunication in Europe. In recent times, the competition mingled with telecommunication companies has sharply risen since the early 1990s. This is due to the rapidly increasing use of phone lines, internet and mobiles etc.This sector also was affected with the credit crisis during late 2007 as shown below on diagram. One of the largest companies in the telecommunications sector BT fac ed their third-quarter profits had been reduced to 81 per cent. This was due to the poor performance from the BTs IT network division. BT had also had to write off a lot of its contracts which resulted in a loss of 336 million. But it should be considered that this was due to the credit crisis, now that the crisis is finished, most companies should adopt to develop more growth in the telecommunication sector.InvestmentTelecommunications is constantly developing through mobile devices, video calling and other work. Todays technology has an stir on the telecommunication sector, such as Apple, that supplies innovative telecommunication service through its Iphone. There telecommunication service offers many new services, which suggest this sector would be ideal for strong growthThe Tech Hardware sector involves lots of constant research that includes innovation and development, which could involve lots of costs in this sector.The Electronic Electronic Equipment sector involves lar ge costs of investment because of the development and material costs involved, you must take into consideration of the current competiveness in the market today. This sector makes up for 4 per cent of the Europeans municipal waste, which is growing three times faster than any other waste management system, as discussed by Waste online website.It would not be recommended to invest in the Media sector because of the competiveness in this market. Current organisations in the media sector are losing out from customers, due to the vastly availableness of free media available online.Pharmaceuticals BiotechnologySector Chemicals GeneralThe pharmaceuticals and biotechnology sector is a massive industry, there are many companies involved with the field. The value of the globular pharmaceutical market is expected to grow 5-7 percent in 2011, to $880 billion, compared with a 4-5 percent pace this year, concord to IMS Health.The sector divides itself into two sub-sectors.Pharmaceutical comp anies Develop and manufacture prescription and over-the-counter drugs (aspirin, cold remedies, birth control pills), as well as vaccines.Biotechnology companies Create new biological substances for use in drugs and canvas tools through research and development.The sector is mainly occupied by small, extremely specialised, research firms. As these companies dont have a normal income flow, but rely more upon new discoveries to help fund future research any breakthroughs or licensing arrangements. As this can lead to large revenues which may help fund even further research. On the other hand due to the small size of the businesses any delays in acquiring funding may cause cash flow problems. Along with this trading can be very irregular as new discoveries can cause share prices to rocket.There has been a trend in the pharmaceutical industry whereby small biotechnology companies are carrying out the premature work on new discoveries, before selling their work to the industry leaders, w hich is sooner similar to an outsourcing model. The end result allows the product to be sold in large quantities to a global market.The industry has seen very drastic changes over the past few quarters, since performance was affected by factors such as generic competition. The next 5 years suggest a major change amid the introduction of new products and patent loses. One of the main reasons why the global pharmaceutical market growth, will be limited to 5-8% through 2014 is because over the next five years. Products that generate sales upwards of $142 billion will eventually face competition from generic products. Also upcoming products are not likely to reach the same amount of sales, as products lose their patent protection.Fig 1.The above graph shows the FTSE-350 of the Pharmaceutical and biotechnology sector over a period of 4 years. You can see the affects of the credit crisis in the first quarter of 2008, after this there is a slight increase in the market however the market crashes in the first quarter of 2009. Overall the sector produced total revenues of $615.1billion in 2008.One of the most profitable sectors of the market in 2008 was cardiovascular which was worth 19.8% of the markets total value. That is equivalent to $121.7 billion. Forecasts suggest that the growth of the market is set to shrink with a likely CAGR of 3.6% fro, 2008-2013. This should cause the value of the market to increase to $734 by the end of 2013.Top ten companiestop 10 pharma bio.jpgEmerging MarketsOther recent trends include focusing on emerging markets such as the BRIC countries (Brazil, Russia, India, and China). This is due to sales in emerging markets that have been growing at faster rate than sales in the established markets (IMS, 2010). Within the next five years these emerging markets will generate as much revenue as the traditional markets such as the U.S. market (largest pharmaceutical market) along with Europe and Japan. stem IMS healthConstruction MaterialsSect or industrials materialsThis sector includes companies that are involved with discovering, developing and processing mad materials and mining/refining of metals, chemicals and forestry. Due to this sector supplying materials for construction, it heavily relies on a strong economy. This sector can also be very unpredictable as it is vulnerable to supply and demand due to prices of raw materials such as gold.In general construction activity declined rapidly by 10.5% in 2009. Estimates backed by fragile secret sector trapping, industrial and commercial property activity suggest a further fall of 1.6% in 2010. The most profitable in the sector over the past year was infrastructure and public non-housing (such as schools) which increased by 10% and 25%Recent data shows slight signs of recovery in the private sector, particularly in new housing. This is backed up by survey evidence which shows a slight increase in housing activity in the final quarter of 2009construction2.jpgIn 2010, private sector housing activity is expected to show further signs of a gradual recovery, but recent signs of increased investor confidence in commercial property may not translate into stronger activity until 2011. This is shown in the graph below.contruction 1.jpgReviewPublic housingWeak activity in the private sector has caused output in this sector to have fallen in 2009.However due to the governments drive to help increase affordable housing there are signs of increase in the second half of 2009. Public housing is expected to rise around 6-7% within the next two years.Private housingOutput for private housing was forecasted to drop by nearly 30% last year. Forecasts suggest the recovery period will be gradual. Housing indicators also show recovery in house prices and mortgage approvals. Output in this sector is set to rise to 1% this year pushing it to 10% in 2011Infrastructure and public non-housingThis sector is continuously growing over the past year this has been due to a nu mber of high- profile projects such as road and rail projects across the UK, the schools building programme and the 2012 OlympicsPrivate commercial and industrialOver 25% of output has plunged since last year in this sector according to forecasts.Even though there has been interest to investors in this specific sector. Output will likely increase again in 2010, as the commercial sector underperformed industrial, before it returns to normal growth.Repair maintenanceAs the current economic situation is slowly recovering, maintenance and private repair are expected to stimulate and eventually grow in 2011. However its different story for public repair and maintenance as its easier to push back spending on this area than make a cut in new high- profile investmentsChemicals General including-Support ServicesTobaccoIndustrials Materials including-Industrial TransportationIndustrial GeneralIndustrial EngineeringSector Chemicals GeneralSub Sector 1 ChemicalsThe chemical industry is ver y crucial to UK manufacturing as it provides the essential compounds for the manufacturing processes and the also the large number of jobs it creates. The industry is equivalent to 1.5%GDP. UKs manufacturing industry total sales of 62.62bn over the period of 2005 to 2009. However when the economy fell into recession one of the key sectors to be hit by this was manufacturing which the chemical industry is a key supplier of.This sector is highly competitive which has lead to a great deal of mergers and acquisitions. Majority of the major companies in the UK industry are global players which are focused on core activities which involve specialised synthesis or final formulation of products. in the lead the economic recession growth was steady and would have increased over a period of time, however due to the sluggish growth of the UK economy and also globally. Growth will stay reasonably restrained in 2011-2012. Along with the dire state of the governments finance which will eventuall y lead to tax rises and spending cuts. Therefore this subsector will not be a profitable investment. However export markets in emerging economies are more likely to successful.Sub Sector 2 Health Care Equipment ServicesThe Healthcare industry is broken down into smaller groups such as medical devices, laboratory equipment, system and technology and associated services such as management, training and education. The majority of companies that operate in the UK are foreign-owned mostly American. This sector exports up to 4bn worth of products and services annually into the global market.Overall this sector is growing extremely fast as there are so many countries working to improve their health care services and facilities. The main reason to the UKs growing presence in the global market is down to the positive relationship between the government, the industry, NHS and private sectors. Along with the well highly-developed health care infrastructure.One of the main themes of the health care industry has become cost reduction this is due to the difficult economic times. It is very crucial that the organisations look for new ways to help decrease costs. Therefore this sub sector will not be a profitable investment.