Business News

Simon English: Bramson set for bad hair day as bank bid comes to a head

2019-04-25 12:19:53 admin

Ed Bramson is in a pickle.

The activist investor who looks like the suave doctor in a daytime TV soap — he could fall back on that when this corporate raiding lark fails him — wants to shake up Barclays. He wants to put an end to its ambitions to be the one last proper UK investment bank.

At next week’s annual general meeting Bramson will try to force his way on to the board to push through his plan to downsize Barclays’ Wall Street ambitions, as if that were the solution to its woes.

The interesting thing to look at will be how many investors in Bramson’s own vehicle — Sherborne — vote against him.

They might note that while returns from Barclays’ investment bank aren’t stellar, they are at least better than nearly all rivals, including the bulge bracket US banks that Barclays is making a more than decent fist of competing against.

One issue counter intuitively in favour of Barclays’ management, just for now, is that the shares are well under Bramson’s 190p buy-in price. 

So far, and it’s already been quite a long campaign, his efforts to get the shares moving have totally failed. He looks like the tin of chutney at the back of the fridge that you keep meaning to throw away.

Barclays is much more than just a vehicle for already rich men to get richer. It’s an important part of the UK High Street and of corporate Britain. Businesses employing hundreds of thousands of people rely on it.

Bramson’s unhelpful comparison of Barclays to Deutsche suggests confusion on his part. 

Deutsche really is a mess as today’s collapsed merger talks with Commerzbank show. If Bramson thinks Barclays, which is in better shape than it has been for years, is as rocky as the German giant he shouldn’t have invested in the first place.

So how about this for a turn of justice: Bramson gets laughed out of next week’s AGM, shareholders throwing metaphorical tomatoes at a hairdo that looks too good to be true.

He gives up, sells the shares, and faces a rebellion from his own investors who decide they want to shove him off his own board.

Free from his pettifogging interference, a revitalised Barclays gets on with the business of being the global British champion we need it to be. The shares double. It could happen.

Is the AA refusing to count its losses?

The other week AA chief executive Simon Breakwell spoke on a very bullish webcast reassuring investors the AA had not lost any major B2B contracts. The AA, he bragged, is “one of the country’s most trusted brands”.

A few days later the RAC announced that it had won SPA (Citroën, Peugeot, Vauxhall). These were, erm, major AA clients. 

This loss presumably did not happen overnight, and indeed on Vauxhall’s website last week the RAC was announced as Vauxhall’s supplier. So it’s a bit hard to see how the AA can claim it did not know about losing the contracts when Breakwell made his webcast.

At 01.30 mins in he says: “Pleased to announce that all of our major B2B partners renewed…” and at 03.20: “We have successfully renewed all of our major B2B contracts.”

A tad misleading, perhaps. In reply, the AA says: “The AA successfully renewed or retained all its key B2B contracts in FY19 including Lloyds, Ford and Volkswagen Group. Our focus is on forming partnerships with OEMs [original equipment manufacturers] where they make strategic and commercial sense.”

A lonely crusade on executive pay

My favourite reverse indicator for what is going to happen to executive pay has always been The Guardian.

An important and admirable newspaper in so many ways, this seems to be one of those issues where it reports what it thinks should happen, rather than what is actually happening.

At a rough guess, I’d say it has written at least 200 times in the past 10 years that a clampdown on runaway executive pay is finally swinging into action.

During this period, executive pay has soared to ever more absurd levels.

I thought the paper had given up, but yesterday it was back: “Ballooning executive pay is as last coming under scrutiny” read the headline.

Public outrage is rising. And the  — inevitable — High Pay Centre says folk think the system is rigged. A Labour MP says it is time for reform.

They’ll be right one day, I guess, maybe.

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Senior cuts costs as Boeing's 737 Max crisis takes toll on margins

2019-04-25 12:19:43 admin

One of the Britain’s biggest plane parts manufacturers, Senior, will be forced to cut costs to cushion the fallout from Boeing’s 737 Max crisis, it emerged on Thursday.

Norwegian Air, the Nordic-based 737 Max-operator flying in the UK, also revealed a £46 million hit from the grounding of the jets today, which followed the deadly Lion Air and Ethiopian Airlines crashes.

Senior, a supplier to the 737 Max, said Boeing’s decision to cut down production would reduce aerospace margins, prompting a £1 million cut to costs and a hiring spree delay to keep profits afloat. 

Lower tax rates due to tax breaks in Malaysia, where it has large operations, should also help. 

Boeing has cut 737 Max production to 42 planes per month instead of  57 while it awaits regulatory approval to get the plane flying again. 

The US planemaker accounts for about 11% of Senior’s revenues. A further 15% of sales comes from Spirit, which makes the Boeing fuselage, and UTC, which also warned of a 737 Max hit.

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Cobham names new chairman Pike as Mike Wareing exits

2019-04-25 12:19:33 admin

Cobham’s boardroom will have a new man at the helm after chairman Mike Wareing, best known as a former UK envoy to southern Iraq, said he would step down.

Wareing was promoted to chairman at the defence firm two years ago after a string of profit alerts led to a boardroom overhaul. 

He said the exit was “the final stage of the rolling succession plan” agreed in early 2017. 

The Ministry of Defence supplier has named serial chairman Jamie Pike, who currently chairs FTSE 100 engineer Spirax-Sarco Engineering, as a replacement.

Pike has become available after stepping down as chairman of plastics group RPC, which was bought for £3.3 billion in a takeover by Berry Global last month. He has also chaired Ibstock, Tyman, Lafarge Tarmac and MBA Polymers.

He also has military links, at one time chairing the UK Defence Support Group.

Wareing, an ex-KPMG executive, was made commissioner of the Basra Development Commission in 2008, which was set up to boost economic development in the war-torn region.

Cobham said trading for the financial year so far was in line with  expectations and the focus was on improving operations and simplifying the company. 

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Carl Mortished: La dolce vita is under threat in Italy as debt crisis looms

2019-04-24 12:15:11 admin

What torments Jean-Claude Juncker, the president of the European Commission, is not Brexit. A much bigger problem looms to the south. While Westminster look anxiously at Brussels, fearing Europe’s leaders will lose patience with Britain’s fumbling efforts to leave the EU, people in Brussels look anxiously at Rome.

The UK is in reasonable financial health. A bad Brexit would be a severe blow but Britain would survive, eventually recover and carry on buying German cars and French cheese. The slow-burning fuse in the eurozone is Italian debt and the dysfunctional coalition government in Rome which continues to add more kegs of gunpowder on to the pile of explosives.

The question is whether Europeans’ love for their Mediterranean cousin, its glorious cultural landmarks, food,  industrial design and fashion flair will be enough to fund the bailout that might be needed if Italy stumbles. 

It is in recession after three quarters of declining economic activity. True to its populist credentials, a bizarre government coalition of nationalists and anti-establishment radicals, threw money at voters, cushioning retirees and the unemployed, betting on economic growth that has failed to materialise. The government already owes €2.4 trillion, equivalent to more than 130% of GDP, the highest debt-to-GDP ratio in the EU, excluding Greece.

Worries about shrinking global trade and the risk of a European recession, sent the yield on Italian government debt soaring last year. It has since fallen but the interest rate paid on debt has become the barometer of eurozone financial weather.

Italy’s banks are significant holders of government-issued loans while much of the foreign-held debt is owned by hedge funds and other speculators. A surge in Italy’s cost of borrowing could, some reckon, spark a speculative attack on Italian debt markets, similar to the Greek meltdown between 2010 and 2012. It would be a game with disastrous consequences for Italy’s banks.

The European Central Bank ended  the speculative attack on Greece by announcing that it would “do whatever it takes” to support the market. It not only saved Greece but stopped, for the time being, similar speculative short-selling of Italian, Spanish and Portuguese debt. Today, Italy has become the problem but the third-largest economy in the eurozone is no errant child that can be sent to the naughty step. 

Italy is really two countries, a collection of northern states with thriving industries. With better infrastructure, more liberal employment laws and access to more sophisticated credit markets, northern Italy could compete with the best and succeed in global markets, even with the burden of the euro’s high value.

Southern Italy is a different story — a world left behind by unemployment, drought, poor education, corruption and the Mafia. It is testimony to Italy’s confusing and desperate politics that Matteo Salvini, the deputy prime minister, has been successful in wooing southern voters to his Lega party.

It was formerly the Northern League, a party that campaigned for northern independence from Rome, and Salvini once condemned southern Italians as “parasites”. But the new League tune is ultra-nationalist and his policy against illegal migrants goes down well in Sicily, the landfall for the leaky boats that bring thousands of Africans across the Mediterranean every year.

Last weekend I watched thousands of tourists enjoying the views in Rome, unperturbed by the financial caldera bubbling beneath the City; young women posed demurely in front of the Colosseum to be photographed. The visitors probably don’t reflect on the landmark’s true purpose: a ghastly pit where dictators pacified a turbulent populace with the entertainment of mass slaughter.

Salvini is pushing the envelope. He hopes that Italy is so important to the eurozone that popular affection (as well as fear of contagion) will force a giant underpinning of its precarious debt mountain. Germany and the other northern eurozone net contributors to EU coffers will knuckle down and approve a budget that includes mutual debt support and guarantees to Italy.

This is a huge gamble; opposition is growing in the Netherlands, Denmark, Austria and Germany. Greece was tough but it would be pocket money compared to an Italian meltdown. 

Salvini may find that even 2,000 years of glorious civilisation don’t generate enough love to pay the bill.

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Focus: Could an Amazon tax really save British retail?

2019-04-24 12:15:00 admin

Pensioner Jane Snowball ordered margarine, cornflakes and eggs from her local Tesco in Gateshead in May 1984 via Teletext. It was, arguably, the world’s first online shop.

Tesco, Britain’s biggest supermarket chain, is now the dominant player in the online grocery arena too. Yet its boss Dave Lewis has been calling for a 2% tax on products sold on the internet to help ease some of the pressure retailers are facing on the High Street. 

“Rates have become a rising tax on investment while profit taxes have fallen,” Lewis told an audience at a business conference last month. “It’s a drag on growth, it’s a drag on competitiveness and [there is] no longer a balance between taxation and sales. We need an online sales levy so that the burden of tax can follow the sales.” 

He has a point. Retail accounts for 5% of the economy, yet pays 10% of all business taxes and a staggering 25% of business rates, mainly charged on physical shops, according to the British Retail Consortium (BRC). This is contributing to the rising number of store closures and discouraging new businesses from taking over empty stores, the property industry argues. 

The BRC this month called for the government to set up an independent review of business taxation that goes beyond Chancellor Philip Hammond’s existing plans to introduce a digital tax on the sales tech giants generate from April 2020. 

The chatter among retail bosses is that it will be a while before policy wonks in Westminster come up with meaningful changes after consultations. Hammond could also face a showdown with the EU and the 36 countries in the Organisation for Economic Co-operation and Development (OECD), which have been working on their own digital tax Britain doesn’t plan to be part of. 

How VAT is levied might be part of the answer, similar to the “eat in or take away” price difference in chains like Pret. For shopping, there could be a similarly two-tiered VAT system where, for example, you would pay VAT at 15% if you shop in a physical store and 22.5% if you buy online. “This would be both an incentive for people to shop in person — and also for online retailers to lease physical stores in and around London. We’re already seeing a growing trend for the latter and this VAT differential could accelerate that,” says Paul Souber, co-head of EMEA retail at agent Colliers International.  

Retail juggernaut Amazon has faced much of the public’s anger over Britain’s ailing High Streets. 

The company has paid only £61.7 million corporation tax in Britain in 20 years while notching up £7 billion in turnover for Amazon UK Services, part of its UK business. But its tax bill on its profits, a much smaller figure than revenues, is less than some major UK retailers pay in just one year. Amazon’s camp argue it is merely adhering to the system and it does pay rates — on its distribution centres and handful of Whole Foods shops. It paid £63 million in business rates last year, more than “many well-known High Street retailers”, it says on its website.  

Lewis reckons that a 2% tax would raise £1.5 billion and fund a business rate cut of 20%, levelling the playing field between bricks-and-mortar and online, while Sports Direct’s Mike Ashley believes a whopping 20% tax on online sales is needed. Asos, despite being a web-only fashion retailer, echoes Lewis’s views, saying that the Government should overhaul business rates and corporation tax.

But not everybody agrees. Such a blunt tool to tax all online retailers could stifle growth and wouldn’t necessarily encourage consumers to use the High Street more. 

“Changing consumer trends and shopping habits have really transformed the traditional retail environment but should we be punishing online stores for being victims of their own success? Shouldn’t it be up to the consumer to determine where and how they decide to shop?” says Souber. 

It could also lead to passing on extra costs to the shopper, as a rise in tax would likely lead to a rise in prices. 

To this, Tesco’s Lewis said: “I hear people talk that the levy will be a tax on the future but I will also argue that business rates are killing the present, damaging the economy… don’t doubt the fact that retailers are having to pass on the costs of increased rates in the prices that shoppers are paying today.” 

For now, retailers will have to do the heavy lifting and have a more creative approach as to how they can carry the costs while still attracting shoppers.

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