Pets At Home Groomed For £1.5bn Public Debut

By Mark Kleinman, City Editor

Pets at Home is to join the growing pack of retail chains being groomed for a stock market debut next year after hiring investment banks to lead a £1.5bn listing.

Kohlberg Kravis Roberts (KKR), the global private equity firm, is plotting a flotation of Britain's biggest pets retailer as soon as the first quarter of 2014 as it seeks to exploit buoyant stock market conditions, according to insiders.

The buyout group has appointed its in-house capital markets division alongside Goldman Sachs, Bank of America Merrill Lynch and Nomura to oversee the listing.

The chain's public market debut will come four years after KKR acquired it in a £955m deal.

In its latest set of full-year results, published in August, Pets at Home reported a surge in sales and profits, underlining its status as one of the high street success stories during a period of economic volatility.

Earnings broke through the £100m barrier for the first time in the year to March, although Nick Wood, the former Dixons executive who now runs Pets at Home, expressed caution about the outlook.

"Market conditions remain challenging with disposable incomes under pressure for many of our customers," he said.

"Against this backdrop we remain committed to delivering fantastic value as well as exceptional service to our customers through new stores and trading formats, new product innovation, and the engagement and knowledge of truly committed colleagues throughout the business."

Operating from 360 stores, Pets at Home also runs a chain of veterinary practices and is the country's biggest retailer of pet food and pet accessories.

The company will form part of a deluge of prospective stock market flotations by UK retailers from all areas of the consumer spending spectrum.

House of Fraser, B&M Bargains, Poundland and AOL, an online appliances retailer, are all drawing up plans to list.

Their plans underline the continuing contrast between the successes and failures of British retailing, with Blockbuster and Barratts, the shoe chain, calling in administrators this week with the combined threat to around 3000 jobs.

KKR and Pets at Home declined to comment.

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House Prices Edge Down From Record Highs

House prices in September did not manage to reach the record high of the previous month, according to official figures.

Prices rose by 3.8% year-on-year to reach £245,000 on average, marking a slight decrease on the peak of £246,000 seen in August, according to the Office for National Statistics (ONS).

However the annual uplift of 3.8% is the highest seen since October 2010 and comes amid calls for the Government to ease the upward pressure on house prices being fuelled by its new Help to Buy scheme by building more homes to meet demand.

The figures were released as the Royal Institution of Chartered Surveyors (Rics) called for urgent action to address the supply of homes, which it said is "nowhere near" that which is needed to cope with "soaring" demand from buyers.

Rics said the number of surveyors reporting house prices lifting across the country had surged to an 11-year high, with the second phase of Help to Buy fuelling "soaring" demand from buyers.

The effect of phase two of Help To Buy is yet to be measured by the ONS

The ONS figures covered the 12 months to September - before the Help To Buy extension came in to force.

The body said that on a seasonally-adjusted basis, UK house prices were unchanged between August and September.

House prices in London soared by 9.4% over the year to reach £434,000 on average - driving most of the national growth performance.

The year-on-year increase reflected growth of 4.2% in England, where typical prices reached £255,000, and 1.4% in Wales, where prices were £163,000 on average.

The rises were offset by annual falls of 1.1% in Scotland, where typical prices fell to £181,000 and 1.5% in Northern Ireland, where the average price edged down to £127,000.

The ONS figures also showed that first-time buyers face having to pay around 5.3% more for a property than they did a year ago.

The typical price paid by a first-time buyer in September was £184,000.

Housebuilder Persimmon said earlier this month it had sold more than 3,000 properties under the first phase of Help to Buy - the Government-backed equity loan scheme for buyers of new properties.

The launch of a next phase - which offers state-backed mortgages to people with deposits as low as 5% - was brought forward to October.

The Halifax and Royal Bank of Scotland recently said they had received a total of £365m in mortgage applications from 2,384 would-be owners, with an average value of more than £153,000 per loan, under the second phase.

The lenders reported the greatest interest outside of London from first-time buyers.

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Energy Bills: EDF Confirms 3.9% Average Rise

EDF Energy is to raise its average gas and electricity bills by 3.9% from January 3 - a lower increase than its rivals - in a move that raises pressure on the Government to help bring down household costs.

The company - the fifth of the so-called Big Six firms to announce a winter increase - said its decision was conditional on David Cameron delivering on his pledge to "roll back" so-called green levies.

EDF claimed that as a result of this decision, its rise was less than half the size of those announced by British Gas, SSE, Scottish Power and npower to date and meant its new standard variable tariff would rise by just £49 on average.

Some 2.4 million of its household customers will be affected as around a third are on fixed-tariff deals.

Only E.ON is yet to confirm a rise among the major players but reports suggest it is planning to announce later this month an average increase of 6.6% from early 2014.

The company said its limited increase was based on a decision to hold back rising costs - including those from the Government's ECO social and environmental scheme - for now pending a decision on their future expected in the Autumn Statement on December 5. 

The firm said: "The company has taken action ahead of the outcome of the Government's review of the costs of ECO and other schemes.

"If the Government makes bigger changes to the costs of its social and environmental schemes than EDF Energy has anticipated, the company pledges to pass these savings onto customers.

"However, if changes to social and environmental programmes are less than anticipated, the company may have to review its standard variable prices again."

Ministers are examining whether the bulk of the costs - expected to amount to £158 annually for the average dual fuel customer next year - should be taken out of bills and placed under general taxation instead to help bring down bills.

EDF's chief executive Vincent de Rivaz said the industry must "challenge the cost and affordability" of Government green schemes.

He added: "I know that price rises are always unwelcome, but we have taken the first step to show what can be done if rising costs are tackled head-on."

Consumer groups gave a cautious reaction to the move.

Tom Lyon, energy expert at uSwitch.com, said: "Any winter price rise is a blow to consumers as it makes the struggle to afford to stay warm that little bit harder.

"However, EDF Energy is to be applauded for the stance it is taking by factoring in the potential reduction on green levies into its calculations.

"This means that customers will know up front that they will benefit from any step the Government takes to reduce the impact of 'hidden' taxes on bills.

"More importantly it also challenges the Government to put its money where its mouth is and to make good its pledges on affordability."

EDF said its decision meant it would be more difficult for its residential supply business to be profitable next year, but the company believed it was important to limit price increases for hard-pressed customers.

News of the increase came amid a furious debate on energy pricing - prompted by Labour's pledge to freeze bills for 20 months if it wins the 2015 general election.

Ministers are keen to promote greater competition - and the value of switching suppliers - while the Energy Secretary Ed Davey has warned that customers are not "cash cows" to be squeezed for profits by the shareholders of energy companies.

Sky's City Editor Mark Kleinman learned on Monday that the industry was mounting a fightback under the growing pressure from politicians, with a report demonstrating its value to the UK economy.

The study suggested it contributed more than £100bn in total last year.

:: Watch a day of special coverage on energy costs all day on Sky News - on Sky 501, Virgin Media 602, Freesat 202, Freeview 82, Skynews.com and Sky News for iPad.

There will also be a special programme on the energy industry on Jeff Randall Live this evening at 7pm.

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Cyberattack Exercise: Banks Test Defences

By Ursula Errington, Business Reporter

Hundreds of staff from the UK's financial institutions will take part in a simulated cyberattack today.

The exercise, the details of which have been kept top secret, will be overseen by officials from the Bank of England, Treasury and Financial Conduct Authority, and will be monitored by the Government's cyber agencies.

It will concentrate on how investment banks would cope with a sustained attack on essential shared and company-specific systems, such as clearing and risk management tools.

The cyber war game, called Waking Shark II, will be led by a team from Credit Suisse, who have designed a scenario to be released to the participants in stages, as if the situation is unfolding in real time.

The test will take place in one room, with various companies and organisations sitting on different tables interacting as the situation gathers momentum. 

The aim is to help in-house IT security experts and fall-back operations planners to practise making swift decisions and communicate effectively with the regulator and industry partners to contain the problems thrown at them.

The last time such an extensive exercise was undertaken was in 2011, when institutions rehearsed how they would cope with a cyberattack during the busiest period of the London Olympics.

From that, it became apparent that an investment banking-focused exercise would be useful to lay out communication protocols between banking institutions and governing bodies, and to establish who would take the lead to co-ordinate a response in the event of such an attack.

According to David Emm, senior security researcher at internet security firm Kaspersky Lab, the right communication is vital in the aftermath of a cyberattack.

He told Sky News: "Businesses must have a plan of action which includes all relevant stakeholders from both internal and external parties.

"Communication across other sectors can be important as the effects on one company can have far reaching consequences for many others.

"The UK Government is keen to pursue a joined-up approach to dealing with cyberattacks - which is good news, but more work still needs to be done to help all businesses adopt a more secure mindset, and exercises like this help contribute to this."

Results and recommendations from the exercise will be published by early next year.

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Gas Bills 'Could Rise' Due To Low Reserves

By Thomas Moore, Health and Science Correspondent

Gas prices could soar this winter if the national supply runs short during another cold snap, an energy expert has warned.

Industry analyst Peter Hughes told Sky News that a "perfect storm" last March of extreme weather and the shutdown of two major pipelines caused prices to double.

And that could happen again because the Government has refused to support the storage of more gas.

"It foreshadows things to come," he said.

"The situation in terms of the risks will only get worse as North Sea production runs down and demand rises.

"That's the double whammy. And if you don't have more storage that translates into real vulnerability."

Britain currently stores enough gas for 13 days of supply. But Germany has reserves to last 69 days, in case there is a problem with the supply from countries such as Russia.

Storage companies buy up cheap gas in the summer, then release it over winter. The effect is to stop prices soaring.

A report by the Redpoint energy consultancy, commissioned by the Government, showed subsidies to encourage investment in more storage could save consumers almost £1bn over 10 years.

It examined four scenarios, three of which showed a net reduction in gas bills.

The UK stores gas in huge tanks - but Germany has five times more

But Energy Minister Michael Fallon rejected subsidies based on the one scenario to show an increase in costs. He also ignored long-term savings, making the costs look worse.

Speaking to Sky News, he was unrepentant, saying. "The money would ... be put on consumers' bills now.

"I would have had to be persuaded that this was a subsidy worth paying. I don't think it is worth it."

Three projects to increase storage capacity have been shelved in the wake of the decision.

Stag Energy had planned to pump gas into caverns under the Irish Sea, but said the scheme was now too expensive. Company boss George Grant said the Government had been shortsighted.

He said: "We view gas storage as an insurance policy for consumers.

"The Redpoint analysis shows there is a net benefit to consumers, but that's a point the Government glossed over."

:: Watch a day of special coverage on energy costs all day on Sky News - on Sky 501, Virgin Media 602, Freesat 202, Freeview 82, Skynews.com and Sky News for iPad.

There will also be a special programme on the energy industry on Jeff Randall Live this evening at 7pm.

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Inflation At 12-Month Low Amid Fuel Cuts

There has been sharp fall in the headline measure of inflation to an annual rate of 2.2% in October from 2.7% the previous month.

The Office for National Statistics (ONS) said it meant the consumer price index (CPI) rate fell to its lowest level for more than a year amid a petrol pump price war that saw 4.9p cut from a litre of fuel over the month, together with a smaller contribution from tuition fees.

The ONS said transport prices overall fell 1.5% month-on-month in October with the main contribution coming from fuel price cuts at many major supermarket chains as wholesale prices fell.

Air fares rose at a slower rate in the year to October

There were also downward contributions from air fares and prices for secondhand cars.

In education, the impact of rising tuition fees was smaller than at the same time last year because many students were already paying the higher rate.

Food inflation fell from 4.8% to 4.3%, easing some pressure on household costs.

The figures will also ease pressure on the Bank of England as it strives to meet its inflation target of 2% and ponders the outlook for its flagship low-interest rate policy ahead of the quarterly Inflation Report news conference on Wednesday.

A lowering of inflation expectations would build confidence about the future of the historically-low 0.5% base rate of interest set out in the Bank's forward guidance policy - which is conditional on the rise in the cost of living remaining under control.

However, the pledge not to consider raising the rate until unemployment drops to 7% means that a widely expected improvement in the Bank's outlook for jobs will be seen as bringing an end to the low rate closer.

Recent inflation-busting energy price hikes have yet to take effect and are likely to have an upward impact on inflation later this year.

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Middle Classes Join Retail Theft Spree

Supermarkets have reported a leap in thefts of expensive products such as meat joints and parmesan cheese - with the finger of blame being increasingly pointed at the middle classes.

The latest Global Retail Theft Barometer found the squeeze on living standards has become so intense that increasing numbers of middle class shoppers are turning to crime to maintain their lifestyles.

It measured the cost of total retail theft at £3.4bn over the past financial year in the UK - equating to £124 per household - roughly in line with the previous year but only because stores have been investing to improve security.

The report suggested the loss from shoplifting was passed on to customers in the form of higher prices - a scenario families do not need given the continuing divide between wage increases and living costs.

Prime cuts are increasingly not being paid for

The report highlighted a growing trend among food retailers to place security tags on the most expensive items including premium steak and spirits as shoplifters attempted to take items with higher value though easily concealable products continued to account for the bulk of thefts.

Russell Holland of Checkpoint Systems, which carried out the research, told Sky News: "We're seeing the variety of people shoplifting and the amount stolen on the increase - only contained by the efforts retailers are making.

"A greater range of products is being stolen - cosmetics in particular - and there is no doubt a broader range of people are lifting products ... it includes Middle England.

"In electrical stores even TVs are going out the front door."

The study found that supermarkets using self-service checkouts were making a greater use of security tagging alongside an increased security presence and staff training costs were rising as the big chains put a greater emphasis on stopping criminality - some of it blamed on its own workers.

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Investors To Play Role in Co-Op Bank Shake-Up

By Mark Kleinman, City Editor

The hedge funds which stand to become major shareholders in the Co-operative Bank are drawing up a shortlist of new board directors even as they try to persuade regulators that they will not seek undue influence over the restructured lender.

Sky News understands that LT2, the group of investors which forced the Co-operative Group into a radically revised bail-out plan unveiled last week, is appointing headhunters to identify two new non-executive directors for the mutual's banking arm.

The bondholders have the right to nominate the board members under the terms of their participation in the rescue plan, according to a previously-unreported section of the prospectus published .

Co-op insiders said on Tuesday that LT2 would be seeking to identify candidates who would diversify from an ethnic and gender perspective the current composition of the Co-op Bank's board. Eight of the Co-op Bank's existing board members are men.

The search would be designed to reflect the hedge funds' support for the Co-op's ethical principles and commitment to diversity, the insider said.

A person close to LT2 said the new directors would be nominated by the bondholders but would not be representatives of the investor group.

"They will be wholly independent board members who act in the interests of all shareholders in the bank," they added. "Corporate governance at the Bank has been very poor and it is clear that more credible people with banking experience are necessary."

Under rules supervised by the Prudential Regulation Authority (PRA), a shareholder is deemed to be in a position of control if it owns more than 9.9% of a regulated bank.

The LT2 group has informed the PRA that none of its individual members will hold a stake of that size, and that LT2 itself will cease to exist if the restructuring is approved.

The Co-op Bank was stunned earlier this year when it was told by regulators that it would have to find £1.5bn to meet Bank of England capital rules.

It lost hundreds of millions of pounds on bad loans, some of which stemmed from its merger with the Britannia in 2009, and has not been immune to the wave of mis-selling scandals which have swept across the British banking industry.

The mutual had been planning to buy more than 630 Lloyds Banking Group branches in an effort to become one of the industry's leading players but was forced to abandon the plan.

The Co-op is now attempting to mobilise investors to back the plan, with some of the older bonds requiring a high turnout to ensure a valid vote.

Euan Sutherland, the Co-op chief executive, has warned that the alternative to the restructuring is bankruptcy.

"The Bank believes that, if the LME does not succeed, the only realistic alternative is resolution of the Bank under the UK Banking Act 2009 and believes that if the Bank were to enter into a bank insolvency or administration procedure following resolution, all holders of the Existing Securities would receive no recovery at all."

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Energy Firms In Ed Davey 'Punch And Judy' Jibe

Ed Davey has been accused of dishing out "tit for tat Punch and Judy insults" by the energy industry after comparing firms to bankers who caused the financial crisis.

The Energy Secretary used a speech to the Energy UK conference to tell the energy firms that they had hit their Fred the Shred moment, referring to Fred Goodwin, the ex-banking boss who presided over the collapse of RBS.

He warned the companies over spiralling energy prices saying that customers were not "cash cows to be squeezed in the pursuit of a higher return for shareholders".

Energy Secretary Ed Davey

He said: "Trust between those who supply energy and those who use it is breaking down. It is so difficult for people to work out what exactly they are paying for that they fear the big energy companies are taking them for a ride when bills go up."

Energy UK responded saying: "The energy industry is already working hard to ensure everyone can keep the lights on and stay warm this winter. The best way to do this is for everyone to work together which is why this tit for tat Punch and Judy show of insults is so unproductive.

"The energy industry is vital to the UK. It is a major employer, a serious investor and a significant taxpayer.

"As analysis from UBS shows about 95% of rising energy costs are out of the hands of the energy companies and can be attributed to government policies and other network, social and environmental costs."

The war of words came as EDF became the fifth of the Big Six energy firms to announce a price increase.

However, the 3.9% rise it announced was significantly lower than that of the other four firms, who have announced average price rises of 9.1%.

EDF said it would was not passing on the rising cost of the Government's green schemes, which it claims would have added an extra £50 to the average household bill.

The move will put pressure on David Cameron to come good on his pledge to roll back green energy levies - the charges on a customer's bill used to pay for environmentally friendly energy production schemes.

Mr Davey welcomed the announcement telling Sky News: "EDF has thrown down the competition gauntlet and I think that's good to help people get better deals on their energy prices."

However, also speaking on Sky News, Caroline Flint, the shadow energy secretary, said: "What EDF have said is that they will only increase their prices to the amount they have announced if the Government gets rid of its obligations to support people with insulation and also renewables.

"They bring into question the way in which their five other compatriots within the Big Six have been using wholesale prices to justify price increases."

The sixth energy firm, E.ON, is reportedly poised to increase its prices by 6.6%.

The row over energy prices escalated as an industry analyst warned that gas prices could soar this winter if the national supply runs short during another cold snap

Peter Hughes told Sky News that a "perfect storm" last March of extreme weather and the shutdown of two major pipelines caused prices to double.

He added that could happen again because the Government has refused to support the storage of more gas.

Sky's Nick Martin, on a gas platform in the North Sea, said: "North Sea gas won't last forever, the harder-to-reach wells cost tens of millions of pounds to drill.

"Somewhere in the middle of this complex equation, the customer still expects value for money." 

:: Watch a day of special coverage on energy costs all day on Sky News - on Sky 501, Virgin Media 602, Freesat 202, Freeview 82, Skynews.com and Sky News for iPad.

There will also be a special programme on the energy industry on Jeff Randall Live this evening at 7pm.

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US Airline Merger Approved By Government

The US Justice Department has reached an agreement to allow the merger of US Airways and American Airlines.

The government sued to block the merger in August, saying it would restrict competition and drive up prices for consumers on hundreds of routes around the country.

The airlines argued their deal would increase competition by creating another big competitor to United Airlines and Delta Air Lines, which grew through recent mergers.

Tuesday's settlement would require the airlines to give up take-off and landing rights to low-cost carriers at major US airports to offset the impact of the merger.

Attorney General Eric Holder said the agreement would ensure more competition on non-stop and connecting routes throughout the country.

The deal must be approved by a federal judge in Washington before the planned merger can move forward.

The two airlines disclosed in February their plans to create a company with 6,700 daily flights and annual revenue of roughly $40bn (£26bn).

More follows...

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