13 April 2017
Week in Brief:BUSINESS AND THE CITY
TRY AGAIN: The troubles of leading house builder Bovis may be coming to an end with the help of fellow residential builder Galliford Try – but not quite in the way that Bovis had in mind. Bovis found both house sales and its share price in a downward spin last year after revelations that the company had been hustling customers to accept houses that were not quite finished, so as to book sales early, so advancing profits and, allegedly, senior management bonuses. The chorus of complaints from new home owners and the concerns of shareholders led to the departure of the chief executive and a decision by the board to pursue a merger – the chosen mergee being Galliford Try. But GT has now decided that this is not a deal, for reasons that are not entirely clear but may have something to do with the costs of integration and Bovis’s low margins compared with rivals in the industry. So Bovis now is trying a different route. It has taken on Galliford Try’s former chief executive, Greg Fitzgerald, as its new CEO. Mr Fitzgerald has a very good reputation among house builders, having built up two small residential developers in the Home Counties, sold them and himself to GT, and then worked there for thirty years, the last ten as chief executive, building the firm up to become a major player in the industry. He has agreed a three year deal at Bovis with most of his remuneration by bonus, but payable only in shares, to align his performance with returns to shareholders. He has a big job to do in restoring confidence, cutting costs, and rebuilding the Bovis brand name, but most observers think that will be a challenge that he will meet.
POWERING ON – OR OFF: We wrote in the Shaw Sheet last week about the sources of electrical supply now available and how perceptions of oil shortages and pressure on supply are misconceived. As if to prove our point, the National Grid has now reported that it expects problems with the supply of power this summer – Britain is likely to have too much of it. As more and more capacity comes on line, especially from sustainable sources, the demand for power in the summer is actually falling and is predicted this year to be about 5% down on last. This is mostly because of us users getting more and more efficient in how we use our electrical kit, those solar panels on the back roof making quite a contribution, and not least because the increases in prices coming through will enable suppliers to pay the green costs placed on them by government to encourage a move to sustainable carbon neutral production. That is working well – especially in promoting solar panels which, of course, are at their most productive in the summer. But National Grid has to manage forward supply, partly so that surges do not occur, damaging sensitive electrical equipment, but also so that production is not wasted – or fall short, as the Grid still has to pay for contracted power whether it gets used or not. Last year the Grid was paying incentives to some industrial users to use more power at times of low demand – just as it sometimes pays during winter peaks to not use electricity. Now they are looking at paying some wind farms and solar producers to not produce this summer. Unfortunately for householders with panels on the roof or a turbine on the chimney, this offer will not apply to them.
NOT JUST SOFT SOAP: Unilever has shown its critics and grumbling shareholders that at least one of their recent criticisms was misplaced – exhibiting a remarkable fleetness of foot in putting up a series of proposals for moving the business on after repulsing the failed takeover bid from Kraft Heinz. It has proposed a sale of its margarine and fats unit, and also an internal merger of its two food divisions, which should in fairly short time raise operating margins to around 20%, reducing the capital requirement of the business and enabling dividends to be improved. The first sign of this will be a €5bn special dividend to be paid to shareholders in the next few months. The strategic review has been completed in a month, but the reaction of the market was that this was a collection of sensible suggestions that addressed concerns about the business and would improve returns whilst strengthening the trading of the business by enabling concentration on core brands.
GIVE A LITTLE WHISTLE: In the UK and the US, the Financial Conduct Authority, the Prudential Regulation Authority, the Department of Justice and New York Department of Financial Services have all said that they will investigate the conduct of Barclay’s CEO Jes Staley and his efforts to discover the identity of the writer of a whistleblowing letter. Mr Staley has said that he was trying to protect a colleague and has apologised for his actions. Whistleblowing is an important weapon in fighting corruption, but the process can only work if the whistleblower is confident that he will remain anonymous. In this case the whistleblower has remained anonymous, but there will be concerns that the story will discourage others from coming forward. Mr Staley will have his pay award adjusted by as much as £1.3m by Barclay’s as a result of his conduct.
OILING THE WHEELS: Having previously said that it only paid money to the Nigerian government, Shell has now admitted that it dealt with a convicted money-launderer when negotiating access to an oil field in Nigeria. Shell and the Italian company ENI paid the Nigerian government $1.3 billion, of which it is claimed $1.1 billion was passed on to a firm called Malabu, controlled by Dan Etete, a man later convicted of money-laundering in a separate case. Shell has said that they believe the settlement was a fully legal transaction.
KEY MARKET INDICES:
(as at 12th April 2017; comments refer to changes on last 7 days; $ is US$)
Interest Rates:
UK£ Base rate: 0.25%, unchanged: 3 month 0.34% (steady); 5 year 0.69% (falling).
Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.20% (rising)
US$: 1 mth 0.98% (steady); 3 mth 1.15% (steady); 5 year 1.96% (falling)
Currency Exchanges:
£/Euro: 1.18, £ rising
£/$: 1.25, £ stable
Euro/$: 1.06, € stable
Gold, oz: $1,275, rising
Aluminium, tonne: $1,907, falling
Copper, tonne: $5,745, falling
Oil, Brent Crude barrel: $56, rising
Wheat, tonne: £148, stable
London Stock Exchange: FTSE 100: 7,349 (rising). FTSE Allshare: 4018 (rising)
Briefly: Very steady week in most areas – with signs of the Easter break beginning early. Gold continues to push gently upwards – a long term trend seems to be emerging there . As always oil provides the main action – a push back up from the weakness of a couple of weeks ago seems likely to reverse as more benign conditions in Libya mean that supplies of crude from that market are increasing rapidly.
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