7 February 2019

Lens on the Week

UK

ARE YOU HOT? No this isn’t a teenage dating game but something we should all be worrying about because if you are not hot now you soon will be.  New met office forecasts show climate change accelerating faster than previously thought with predictions of 1.5 C above historic levels being reached within the next 5 years.  The cause?  Carbon emissions of course.  The likely consequences?  Starvation, migration and war.  This is what our politicians should be thinking about, and sooner or later responsibility for it needs to be given to a global agency with powers of enforcement.

BREXIT CONFUSION:  The debate over the backstop rages on with options under discussion including a 3 year transition followed by a technical solution.  That is rejected by the Irish on the basis that it involves a hard border.  Others want a time limit on the backstop, another rejected option.  Plainly we are not going to find anything which satisfies the Brexiteers and the EU.  So what does that leave?  The only way of avoiding no-deal is if May gets some Labour support.  That would fracture both parties.  Labour would be split between those who stayed with the current leadership and those who voted with the government.  The Tories would be split between the Brexiteers and the rest.  Since the whips cannot deliver a majority, Mrs May might make the next vote free to make it easier for Labour members to support her.

HOME FOR HARD BREXITEERS: Meanwhile, over in Ireland, Mr Tusk suggests a new home for the hard Brexiteers, a special place in hell for those who “promoted Brexit without even a sketch of a plan of how to carry it out safely”.  Needless to say Ms Leadsom and the humourless jackasses of the twittersphere have been protesting at his language but the prize goes to the Brussels officials who, according to the Press, were quick to explain “that the Brexiteers’ special place in hell would be for when they are dead and “not right now””.  Whew, that helps!  We had assumed it was some sort of des res.

Behind the jokes (and we all needed a few of those, didn’t we?) there is something worth considering.  Experienced men like Tusk do not normally get overheard by mistake.  His comment was probably choreographed to put pressure on those in both camps who regard a hard Brexit as acceptable.  Is it the warm up for something?  Time will tell.

AUDIT BLUES: Carillion, BHS, Enron, in each case disaster struck and in each case there were concerns about auditing.  Now Business Secretary Greg Clark seems ready to grasp the nettle as he announces an enquiry into competition in the audit sector to be chaired by Andrew Tyrie, the ex chairman of the Commons Treasury Committee, and an enquiry into conflicts of interest, to be chaired by Sir John Kingman ex chairman of Legal and General.  These are real heavyweights and unlikely to be bamboozled by the accountancy lobby.  Their remit is wide, too, with Sir John to look at the possibility of auditors of quoted companies being appointed by a statutory authority.  Still, it is a difficult area.  Audits are only as good as the people who do them so an audit career has to attract its share of the best.  Getting the best brains into an area driven by the state is always difficult.  Lord Tyrie and Sir John will need to put their thinking caps on.

International

VENEZUELA: The EU members Germany, Spain, France and the UK have recognised Juan Guaidó as head of state, as Maduro has not announced fresh presidential elections, a condition set by the EU.  Maduro’s second term in office was secured last year by elections from which opposition parties were barred and which were widely regarded as rigged, so Mr Guaidó – as head of the democratically-elected but side-lined National Assembly – has been appointed interim president until free and fair elections can take place.  Italy and Greece are defying the EU, however, and refusing to abandon the Maduro regime. Neither is Jeremy Corbyn supporting Juan Guaidó or condemning Maduro.  A Corbyn spokesperson’s statement that the people of Venezuela should determine the future of Venezuela contradicts his stance (presumably unintentionally), because the only way for the majority of people in Venezuela to try to determine their future without being attacked or imprisoned by the Maduro regime is to restore their democratic voice which the regime has stolen from them, something which Maduro is refusing to do and which Guaidó has promised to do.

There are accounts that the Maduro regime is trying to sell off the country’s gold reserves for US dollars via Russia and the Middle East, presumably to fund the continued support of the military and other pro-Maduro factions, or to prepare a bolt-hole.  The opposition said that it had thwarted an attempt by the regime to move more than a billion US dollars of state funds out of the country and into Uruguay.

Last week’s sanctions by the USA against business with Venezuela, including a ban on purchasing Venezuelan oil (unless payment is made into an account for Mr Guaido’s government), are beginning to bring shipments of oil from Venezuela to a halt.  The USA has despatched emergency supplies of humanitarian aid – medicines, medical equipment and food – to countries neighbouring Venezuela, ready for it to be moved over the border as soon as possible (Maduro, however, has always refused international aid for his people, in spite of the deprivations they have been suffering in recent years).  Aid and sanctions – the carrot and the stick which might swing the balance against oppression and corruption.

There have been no further hints of military intervention from outside, and indeed Canada and the Lima Group of Latin American countries issued a joint statement to “reiterate their support for a process of peaceful transition through political and democratic means without the use of force”.

Financial

ANOTHER DAY…:  Some people like to go shopping every week; people such as Mike Ashley, boss and principal owner of Sports Direct.  Mr Ashley prefers not to buy individual items, he likes to buy the shop – indeed a whole chain of shops.  And like many of us, he prefers a bargain – preferably by buying from the Receiver or Administrator.  This week he is said to be buying Sofa.Com, being sold by debt investor LGT European Capital.  LGT took control from equity investor CBPE (which bought it in 2014 for £50m), but has decided to exit.  £1 was said to be the price, though there may be some debt remaining in the business.  Sofa has outlets in House of Fraser department stores, which Mr Ashley bought last year, and the industry thinks he may close some freestanding outlets but expand the brand within his department store group – he is also trying to buy Debenhams.  Mr Ashley is said to be also interested in HMV (also in administration), and is a significant shareholder in French Connection, Findel, and Game Digital.  Even Patisserie Valerie is said to be on his possible shopping list.

ODD ONE OUT:  Not on Mr Ashley’s shopping list (so far) is off-licence Oddbins, which last week called in the Administrators, citing ferocious competition, inflation, declining consumer spending, rising wages (which increases costs, rather than leading to more spending on booze) and even Brexit (though you might think that would make customers drink more, not less).  Oddbins is the largest element of a 101 outlet chain of similar businesses and two food stores, owned by the Chatha family – who themselves bought it out of administration seven years ago.

BUT IN ANOTHER PLACE:  The Oddbins Administrators could not cite Amazon as a cause of their problems – it does not yet sell alcohol on line.  But many other retailers are certainly feeling the Amazon effect – as can be clearly seen in its quarterly results for the last three months of 2018.  Revenue for the comparable 2017 quarter was up 20%, to US$72bn, and profits were over $3bn.  That is after giving very significant pay rises to its warehouse staff – now on £9.50 an hour in the UK, comfortably above the minimum wage, but the increases seem to have had little discernable effect on profits, which were up over 60% on 2017.  Total profits for 2017 will be something over $9bn, demonstrating Amazon’s position as the largest online retailer in the world by far.

TOPPING UP THE GLASS:  If we are taking to drink, it seems to be the hard stuff that we need.  And that is very good for the distilling business.  New gin distilleries are springing up everywhere, whisky has escaped from its traditional locations north of Hadrian’s Wall and in the Emerald Isle to be found even in Cornwall, Yorkshire and Norfolk; even vodka, though not as popular as it was, is still selling well.  Which is good news for the largest distiller of them all, Diageo, which sells a range of spirits across the world, although the UK, China, and India are especially strong.  Sales were up 6% in the second half of last year, which pushed profits up 20% to £2.6bn.  Gin is doing especially well, but whisky is also growing, and the company is not worried about Brexit – it says it has strong brand loyalties, does not export to Europe through the south-east of the UK, and its main markets are outside the EU.  So well are Diageo doing that they intend to buy back £3bn of shares this year, a welcome boost to shareholders.  Cheers all round.