Business interview: Drax chief Will Gardiner on seeking a clean successor to Old King Coal

Business interview: Drax chief Will Gardiner on seeking a clean successor to Old King Coal

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Few issues around business generate more heat than its treatment of the environment. Electricity is a must-have to keep the wheels of commerce and public life turning, but pressure groups line up to promote green energy and attack those using polluting coal and gas. 

Drax, the company named after the vast power station complex it runs in Yorkshire, is notorious among environmentalists for being one of the biggest polluters in the country. It operates two coal-fired generators which belch filthy smoke into the atmosphere.

But the firm is working hard to shift its status as green activists’ Public Enemy Number One. Alongside those two coal-fired units are four which it switched from the black stuff to biomass; wooden pellets made of waste timber and sawdust from US forests. 

The plan is to change at least one of the remaining coal sites into gas, switching off coal altogether by 2023. Furthermore, it has just spent more than £700 million buying a major slug of hydro-electric power operations from Scottish Power, giving it another tick in the green box.

Though the environmental lobbyists applaud the end of coal, they remain suspicious of switching to gas, which they say will still spew carbon into the atmosphere. They are also far from happy about biomass, and skilfully lobby parliament on both issues.

With all that Westminster wrangling, it’s fitting that the new chief executive of Drax, who pulled off the Scottish Power deal, is steeped in handling competing political arguments.

Will Gardiner, 54, is the New York-raised son of an intellectual Democrat mother and Wall Street Republican father. A staunch liberal, he says,  politics-wise, his Upper East side childhood was like having “an angel on one side and a devil on the other”.

An early memory is the 1972 election when George McGovern was defeated by Richard Nixon. “One half of the family was extremely excited and the other extremely depressed.”

The New York Jets fan boarded in the rough and tumble of Groton school, the Boston alma mater of Franklin D Roosevelt, before taking Russian and Soviet studies at Harvard. “It was the peak of the cold war, and Ronald Reagan was rattling sabres, so I thought it was pretty important to understand why,” he says.

From there, it was to Citi and JPMorgan, advising on takeovers and privatisations in turbulent Latin America.

“The work was all about how you can build bridges between different worlds and help them understand each other. Fascinating,” he recalls over sandwiches at Drax’s small City HQ.

His words are rapid but softly spoken, often slipping into a Manhattan mumble. Colleagues past and present say he’s a good listener, but can be abrupt when he disagrees or scents waffle.

Although he’s less than a year into the job, Gardiner had a decent run-up as finance director to his predecessor Dorothy Thompson. Gardiner says he was more of a “co-pilot” to the chief executive than a mere numbers guy. He’d previously filled a similar role riding shotgun at the semiconductors designer CSR, according to his boss at the time, Joep van Beurden.

He and wife Beth, an NBC News producer-turned-art historian, have lived in Earl’s Court for more than 15 years. They have three children, aged from 12 to 20. Culture vulture though he is, Gardiner is also a sports nut, as likely to be found at Spurs as at the Royal Ballet.

But back to his day job. Environmentalists argue he is only moving into hydro electric now because he has to. They have a point. Old King Coal is being deposed. The government has committed to end coal generation in seven years. Meanwhile, taxpayer subsidies Thompson negotiated biomass (total £800 million last year) end in 2027.

Gardiner has to diversify. “Futureproofing is a big part of what we’re doing,” he says. “You sit there and think: what are the things about Drax that I don’t like? Most of its earnings come from one place, one income stream. That’s an uncomfortable place to be.” He got a sharp lesson in that last year when a fire on a biomass conveyor belt burned 9% off Drax’s share price.

For the first time, the Scottish Power deal will take Drax into low-carbon generation methods like pumped storage, where water is pumped to a reservoir at the top of a mountain at night using cheap-time electricity, then released down through turbines in peak demand times.

It means coal will become an ever smaller part of Drax’s energy mix. However, while he likes the clean energy the deal brings, Gardiner is proud of the non-renewable parts of his business.

In fact, the Tesla driver claims he took the job because he felt Drax could help the world meet the climate change targets set by the Paris accord. How? Because, as scientists on the Intergovernmental Panel on Climate Change put it recently, though 85% of the UK’s electricity will eventually be generated by wind and solar, 15% will still need to come from other, more reliable sources.

“Most energy companies are very focused on the 85%. But there’s a real opportunity in the other 15%,” says Gardiner. “There are going to be lots of times when the wind’s not blowing and the sun’s not shining. There needs to be some fuel or power to do that which is low or net-zero carbon.” 

Biomass, he says, is the key, accompanied by gas for a 20-to-30-year handover period.

Environmentalists argue biomass still creates carbon emissions in the burning process, while harvesting the wood damages the world’s forests too. Not to mention the fact that Drax imports its pellets from the South-east of the US, running up environmental costs transporting to ports in Liverpool and the Humber.

Gardiner has a ready armoury to counter the claims. First off, he says, Drax gets its wood from offcuts being harvested for housebuilding and furniture. “These are trees that were going to be chopped down anyway,” he says. Besides, he adds, the forests are managed sustainably, with double the number of trees planted than are chopped down.

And on the Co2 factor? “The amount of emissions in the whole production process, including transport,” he says, “is about 15% of coal’s emissions. Yes, there are emissions, but far less than if we were just burning coal.” Gardiner has also teamed Drax with a Leeds university spin-out company to try to capture the carbon, using some of them to create Co2 for fizzy drinks and beer or mixing it with hydrogen to create petrol. Cheers to that. 

Why does Drax have to ship the wood from so far away, I ask, somewhat naively as it turns out. Why not use British timber? “Well,” he says patiently, “we use more wood than the entire annual forest harvest in the UK. So there’s a bit of a scale problem there. The US forests we use are something like three times the entire landmass of Britain.” Point taken. Speaking of raw materials supply, I wonder what his view is of our energy security. Drax’s planned move into gas will add to our reliance on foreign suppliers. Currently, we use largely Norwegian and British gas, but some fear we’ll eventually have to rely on Russian supplies like much of Europe.

As a Russian scholar, what does Gardiner think of that? “Hmm. Don’t… trust… the Russians,” he declares, conspiratorially. I think he’s joking, but I’m not sure. One thing’s certain, he’s no optimist about UK fracking. While extracting gas from rock has revolutionised the US energy scene, in Britain, fears of earth tremors and pollution have sparked so much protest that projects have struggled to get off the ground.

“In the US, when business wants to do something they can just do it. It doesn’t feel like that’s the case here. When significant proportions of the population decide onshore wind is not what they want, they stop it, right? I don’t think that’s necessarily a bad thing, by the way, as long as it’s balanced.”

Environmentalists are training their sights on Drax’s plans to turn its coal generation into gas. Handling those voices will be the toughest test yet of Gardiner’s political skills. He’ll be hoping that, unlike the election of Tricky Dicky Nixon in ’72, this time his team wins.

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November 17, 2018 |

Jim Armitage: Lawyers are right to find floats guilty of long-term harm

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When asked why he refuses to move with the times, Rumpole of the Bailey responds: “If I don’t like the way the times are moving, I shall refuse to accompany them.”

Rumpole may be a fictional barrister, but many lawyers feel similarly about the current fashion for floating their firms on the stock market.

City brokers and investment bankers may be profiting, but it’s doubtful the firms themselves will fare so well in the long term.

As DWF gears up for a £600 million float, the worry is that this get-rich-quick scheme for the current crop of staff will end in disruption and instability in future years.

Law firms are nothing but a collection of people and a common culture. The traditional partner model, where staff work for a decade in the hope of one day achieving partnership, is what keeps people together and engenders loyalty. 

The partnership becomes most lawyers’ prime source of wealth, creating long-term thinking and stability in a firm. Rather than being focused on driving relentless quarterly earnings growth for external shareholders through ill-advised takeovers and other tricks, partners’ interests are based on the strength of the firm decades hence. 

So, for example, they will be less likely to fire staff as the economy dips, leaving themselves struggling to re-hire when the work picks up. 

Replacing all that with shares staff can easily buy and sell on the market seems a pretty poor substitute.  

Rumpole would rightly give a loud harumph to the whole idea.

Silence is golden

Business leaders failed to speak out adequately against Brexit before the referendum two years ago. But they can be forgiven for ignoring the desperate pleas from Whitehall to back the withdrawal agreement.

In a  briefing yesterday afternoon led by Philip Rycroft, Permanent Secretary at the Brexit Department, bosses were urged to voice their support for the deal to MPs. 

But until we know how the power play in Westminster pans out, they would be mad to comply. 

Whoever rises to Number 10 in the febrile times ahead is likely to be an enemy of Theresa May and an opponent of the deal. Why, therefore, risk alienating your business by supporting her now?

Better for the time being to lie low and keep schtum.

Drax boss shows Will to power

Drax chief Will Gardiner is a practical man finding pragmatic solutions to global warming. 

He impressed me with his quiet intelligence when we met last week.

One statement of his kept coming back to me in the past 48 hours of Brexit chaos: “We’re in a world where governments are not doing what you would like them to. There’s a lot of problems that need solving, and it’s only businesses who can do it. It’s up to us to solve those problems.”

It’s very hard to disagree with him, isn’t it?

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November 17, 2018 |

Ex-Stobart boss labelled 'no pussycat' in court spat

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Former Stobart Group boss Andrew Tinkler has been dubbed “no pussycat” in a High Court showdown with his former employer.

The logistics firm’s current chief executive Warwick Brady was giving evidence over a boardroom brawl at the FTSE 250 firm.

Stobart is suing former boss and 7% shareholder Tinkler, accusing him of conspiring to harm the firm. Tinkler denies wrongdoing and has counterclaimed, saying his dismissal and the result of a controversial AGM vote were invalid.

A row broke out in May between Tinkler and management. Tinkler, who has since been sacked, had wanted to replace chair Iain Ferguson with retail tycoon Philip Day because of a strategy dispute.

The court heard the events leading up the quarrel. Yesterday, Brady said there was never an issue about Tinkler contributing to the business. But he added: “It is what happens if you didn’t agree with Andrew that was the problem”.

Brady said Tinkler had a “history of litigation. So he’s not a pussycat; right?” 

Tinkler is expected to speak next week at the trial, which today entered its fifth day.

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November 17, 2018 |

Jim Armitage: Dead deal moves bosses closer to second referendum

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Dominic Raab isn’t the only one who detests the doomed Brexit deal he negotiated. Noone in business likes it much either.

While it would give the City and goods exporters some assurance that they’ll be able to access European markets, service industries outside finance are left hanging in the wind.

The proposed deal would see British industry suffering the inconveniences of exiting the EU without the much-vaunted Brexiteer benefits of being free to hatch trade deals elsewhere.

But, and it’s a but as big as the Brexit battlebus, the withdrawal agreement would offer us one great reason to cheer. It would avoid us tumbling out of the EU next March with no transition period in place. 

This so-called cliff-edge scenario is what scares business people the most. 

While big companies in the UK have been carrying out hard Brexit preparations, nobody knows how much. As for smaller firms, and our trading partners in Europe, anecdotal evidence suggests most have been adopting a head-in-the-sand approach.

Only 14% of Institute of Directors members say they could cope with a no-deal exit.

So, the potential for utter chaos in the days and months after a cliff-edge departure is huge.

Under this deal, in the unlikely event it goes through, businesses will have at least 21 months to adapt to the new realities.  

It’s hard to overemphasise how important that is.

Here’s an example. There’s still no clarity on whether EU regulators will accept UK-made medicines which haven’t undergone tests on EU soil. So, British firms will have to build testing labs on the Continent to carry out replica tests to those done in Britain. 

AstraZeneca, one of our better-prepared multinationals, has already built a lab in Sweden to do this (pointless) duplicate work.

But have all our other manufacturers? Considering such Brexit measures have cost AZ £40 million, it’s highly doubtful smaller firms will have done. A period of adjustment, then, will help less-well-prepared businesses carry out the necessary measures.

Such situations are repeated across every industry.

But there’s another issue here: ironing out the fine details of our new relations with Europe will take years, well after the proposed end of formal transition in late 2020. 

Even the 550 pages of last night’s withdrawal agreement contains only the barest of bones. 

So, anyone who tells you today that this deal would bring us certainty, a set of ground rules around which businesses can prepare, is deluded. 

The only route to certainty is if we find a way to overturn this whole Brexit catastrophe and stay in the EU. 

Little wonder increasing numbers of company bosses are rallying behind a second referendum.

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November 16, 2018 |

3i's boss warns on 'too much cash' but sees future as rosy

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So much cash is floating around private equity looking for a home that asset prices are far too high. 

That’s the view of 3i chief executive Simon Borrows, who otherwise has an optimistic view of the near future.

3i made a total return of 10% in the six months to September, and net asset value per share rose more than 7% to 776p.

3i itself has plenty of cash on hand to deploy, easily more than  £500 million, but is wary of the most obvious opportunities.

“We have good momentum across our portfolio, but remain cautious about the pricing of new investment in general,” he told the City.

Borrows’ response to this is “trying to prioritise… (deals) where we have a particular competitive advantage”.

Around 80% of 3i’s business is private equity, with the rest infrastructure.

On the new Brexit deal, Borrows had no opinion, yet. “I haven’t begun to read the 500 pages and I’m not sure I’ll have time,” he said.

Borrows added: “We remain confident in the growth plans across our investments and will maintain our focus on active management to maximise value for our shareholders and co-investors.”

3i is paying an interim dividend of 15p. The shares slipped 18p to 842p. They have roughly doubled in the past two years.

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November 16, 2018 |

Brexit latest: Business chiefs react to Theresa May's proposed deal

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Chief executives from across different business sectors share their initial thoughts on the latest Brexit deal….

Patrick Dardis at Young’s: 

“We wanted to avoid a cliff edge. This is great news for business. We have to press upon politicians to grab this opportunity and put aside personal ambitions and support this deal.

We have got as much as we can from a business perspective and we need politicians to support this.”

Franco Manca parent’s Fulham Shore’s chairman David Page:

“Plenty more agony and indecision to come I’m afraid… This country’s wealth and health rely on a stable political environment – the last two years have been a chaotic disaster. The last 24 hours even worse. 

Our employees and customers need a secure financial environment, the trust in our national political system is currently at zero.”

Helen Brocklebank at luxury goods trade body Walpole:

“We’re encouraged there’s a customs union with the EU until the end of 2020. We are resigned to it being the best deal we could expect. We’re relieved there is finally some kind of clarity. But the fact remains it was never going to be as helpful to British luxury businesses as we had as a member of the EU, and that’s the tragedy of Brexit.”

Jon Di-Stefano at Telford Homes:

“We are looking at the agreement with cautious optimism. We really need certainty that there will be a stable outcome and this is a significant step in the right direction.

I suspect market sentiment will not improve until, and if, it gets the backing of parliament as a whole and so that is the next big question.”

Bellway boss Jason Honeyman:

“The London residential market tends to be the most sensitive to the potential impact of Brexit. As the political picture becomes clearer it gives Bellway more confidence to invest in London albeit there is still long way to go.”

Gerry Hughes, boss of property agent giant GVA:

“I am pleased to see a step towards establishing the greater certainty that the real estate industry craves. Although the market has been more resilient than many would have feared over the last 2 years it is has been a difficult time. The worst outcome would be a no deal Brexit as this sets up a very uncertain  future. A small step forward, but a long way to go.”

Helen Dickinson OBE, chief executive of the British Retail Consortium:

“Until a withdrawal agreement is approved by both Parliament and EU member states, we have continuing uncertainty and the risk remains of consumers facing higher prices and reduced availability of products in March 2019.

We urge Parliament to come together to secure a withdrawal agreement that can protect frictionless, tariff-free trade throughout the transition period.”


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November 16, 2018 |

Shaftesbury agrees deal with KERB for big new Seven Dials food market

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The West End is set to get its first  permanent covered food market at a former banana and cucumber warehouse near Covent Garden, the Evening Standard can reveal.

The venue will be called Seven Dials Market and have space for about 26 traders and seating areas for hundreds of visitors.

Street food operator KERB, known for hosting stalls in the City and Paddington, has agreed to operate inside a building for the first time.

Although there are open-air markets such as Soho’s Berwick Street Market operating in the West End, the nearest covered foodie destination is Borough Market across the river. The new venue will be yards from the site of the former fruit, vegetable and flower markets in Covent Garden piazza, which relocated to Nine Elms in 1974.

KERB’s Finchley-born managing director Simon Mitchell expects Seven Dials Market to open by next summer, and told the Standard: “We believe we will be the West End’s only dedicated covered food market. We have long been looking for a permanent home like this.”

He added that there will be fresh produce stalls, hot food and grab-and-go meals. He is looking for start-ups and independent vendors to take space.

KERB’s other uncovered markets have hosted firms such as Burger & Beyond, Nonna’s Gelato and Melter Meatballs.

Mr Mitchell said: “We’ve worked closely with upwards of 150 brilliant independent food entrepreneurs over the last six years and see Seven Dials Market as the next step for us and them in this journey.”

The company has signed a lease with the landlord, property company Shaftesbury, to take over 22,000 square feet of Thomas Neal’s Warehouse.

Shaftesbury, which also owns swathes of Carnaby Street and Chinatown, has invested to redevelop Thomas Neal’s Warehouse, transforming it from its more recent use as a shopping centre.

Tom Welton, executive director at Shaftesbury, called it a “significant building that required something special to give it a renewed purpose”.  

The Seven Dials area has 32 million annual visitors, and the market is expected to boost shopper footfall further.

Nicholas Marks at property agent James Andrew International, which brokered the deal alongside JLL and Nash Bond, said that despite economic uncertainty “London remains one of the food capitals of the world”.

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November 15, 2018 |

Grainger swells homes for rent in £400m buyout

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The UK’s biggest listed landlord, Grainger, swelled its portfolio of homes to rent in London and the South-East on Wednesday with a £396 million deal.

Grainger is buying out its joint venture partner, European pension fund manger APG, to take full ownership of their GRIP Reit partnership, which has 1700 homes.

Grainger is paying with a £347 million cash-call on shareholders. 

The portfolio, which should generate £32.5 million in rent a year, grows the value of Grainger’s private rented pipeline to £1.37 billion, well ahead of its original target of £850 million by 2020.

Chief executive Helen Gordon has targeted growth as the number of households in the sector is set to jump from 4.7 million to 7.2 million by 2025.

Grainger has managed the GRIP Reit portfolio since 2013 while holding a 24.9% stake.

Gordon said: “I’ve been disappointed and frustrated that we have been doing the heavy lifting to build a brilliant portfolio but we only own 25% of it.” Grainger is focused on London and the surrounding areas in particular due to high property prices and its economic resilience.

Peel Hunt’s James Carswell said: “The deal has clear strategic merits and, whilst not always popular, we believe the benefits more than offset the discounted rights issue.”

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November 15, 2018 |

Flybe put up for sale as profits fall at the airline

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Struggling regional airline Flybe on Wednesday put itself up for sale after being burdened with higher fuel costs and currency headwinds.

The carrier revealed its strategic review as it posted a 54% slump in first-half pre-tax profits to £7.4 million. It also warned that it is grappling with softer demand in the short-haul flights market.

Flybe said it is “in discussions with a number of strategic operators about a potential sale of the company”. 

Chief executive Christine Ourmières-Widener declined to say whether the suitors were rivals, or whether Southend airport-owner Stobart may revisit talks. It abandoned plans for a takeover deal earlier this year.

Flybe’s slots at Heathrow, Southend and Gatwick could appeal to other airlines. It has 78 planes.

The shares rose 0.31p to 12.1p, valuing Flybe at  £25 million. It was £215 million when it floated on the London Stock Exchange in 2010. 

Ourmières-Widener added that another part of the review, which financial adviser Evercore is acting on, could alternatively see the airline speed up its cost savings plan.

The firm said: “Given the challenges brought by rising fuel prices and weaker sterling, management is actively encouraging every employee to focus on innovative ways to reduce costs and challenge existing procedures.”

Measures being looked at include reviewing supplier contracts and better fuel planning.

Today’s update comes around a month after the firm warned it expects a full-year pre-tax loss of £22 million, far higher than the City had forecast.

In the six months to September 30 revenues decreased 2.4% to £419.2 million, partly hurt by a reduction in its fleet size.

The company added that Brexit remains a major uncertainty for the sector and the wider economy.

Ourmières-Widener told the Standard: “Like rivals we are in challenging times… you have to look at all options.” 

However, she remains “confident in the  vital role that Flybe plays in UK connectivity”.

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November 15, 2018 |

Taylor Wimpey sees slowdown as house buyers wait

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Brexit jitters spread to housebuilder Taylor Wimpey on Tuesday as worried buyers take longer to sign on the dotted line.

Chief executive Pete Redfern said the signs of nerves had been seen “particularly at the higher price points” in the South East. “It would be very surprising at the moment if you didn’t feel a bit of caution,” he added. “Our general view is that people are taking a bit longer.” 

Taylor Wimpey said 2018 would be in line with hopes and still plans to return £600 million in dividends to investors next year, but warned that sales volumes next year would be “broadly flat”.

Shares dropped more than 2%, or 3.8p, to 159.3p.

Peel Hunt’s Gavin Jago cut profit forecasts by 5% for next year.

“There is clearly a more cautious tone in the outlook statement around near term trading,” he said.

But Taylor Wimpey said growth prospects from 2020 onwards were more positive.

Housebuilders also had good news in October’s Budget over the extension of the Help to Buy subsidy scheme, which will be wound down in 2023.

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November 14, 2018 |
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