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GUARDIAN Sun, 15 Jan 2012
We only need to look back a few years to find a chain facing problems of the kind now confronting Philip Clarke at Tesco
Does this ring a bell? Retailer smashes UK profit records, boosted by expansion overseas and years of unbroken success. Its grammar-school-educated chief executive is hailed as the finest shopkeeper of his generation and awarded a knighthood. After more than a decade of leadership, our hero bows out in glory. One of his lieutenants is promoted amid rumblings of discontent among rivals.
Within months, the company issues a profits warning, the first anybody can remember. The shares plunge and the new boss says mistakes were made in Christmas trading. The company is soon exposed as under-invested: its stores are seen as shabby, its products mediocre and its service indifferent.
Yes: it's Marks & Spencer, just before the turn of the century. M&S profits peaked at £1.2bn in 1998 and few anticipated the chaos that followed Sir Richard Greenbury's departure the next year. Is Tesco next? Will the later years of Sir Terry Leahy's long reign now be reassessed as the period in which Tesco lost its touch? Will the story of the M&S decline – years of boardroom infighting and strategic stumbles – be echoed in Cheshunt?
It's impossible to know, of course. Today it still seems absurd to think that Tesco could be knocked off its perch as comprehensively as M&S was. But, remember, at the time, M&S's difficulties were also presented as surmountable. In that famous profit warning in January 1999, Peter Salsbury, Greenbury's hapless successor, blamed over-ordering of stock before Christmas. Philip Clarke, Leahy's successor at Tesco, also pointed out a tactical mistake last week – a failure to react to rivals' discount coupons.
There is, however, one big difference between Salsbury and Clarke: the Tesco man is being explicit about its "longstanding business issues", as he described them. Quality, range and service needed to be improved, he said. On the principle that recognition of a problem is the first step towards a cure, Clarke is ahead of the plot. In M&S's case, it arguably took until 2004, and the arrival of Sir Stuart Rose, before it fully confronted its malaise.
So far, so good, from Clarke's point of view. But modern-day Tesco is a far more complicated machine than M&S circa 2000. It operates in 14 countries and employs 492,000 people. M&S's overseas distractions in the old days look tiny compared with Tesco's empire today. The UK still accounts for two-thirds of Tesco's profit but Clarke cannot afford to dedicate 100% of his energy to the troubles at home. The group has poured £700m into US startup Fresh & Easy, yet the future of that bold adventure is not secure. New fires could also break out: Tesco has 200 stores in troubled Hungary.
Meanwhile, the rules of retailing are changing. Growth in online shopping has exploded and Tesco's big-box hypermarkets, stuffed with electrical goods, garden equipment and clothing as well as food, suddenly look like a solution to yesterday's problem. Even Clarke says he wouldn't want many more. By contrast, M&S' property problems look straightforward in retrospect – it had too many small shops and its big stores needed new escalators, better lighting and paint.
But surely, it might be said, Tesco cannot possibly suffer the disastrous rounds of management upheaval that affected M&S in 2000-04. True, it probably won't. But nor can the top line at Tesco be described as settled. Andrew Higginson, former finance chief who now chairs Tesco Bank, is departing in search of the chief executive job he didn't clinch at Tesco. David Potts, another contender after 39 years at the company, is also going. The first outsider in the chairman's seat, Sir Richard Broadbent, is a new arrival.
Meanwhile, Tim Mason is chief executive of Fresh & Easy, but Clarke has handed him the extra titles of deputy chief executive and chief marketing officer. That's a lot of hats to wear in California – a..
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GUARDIAN Sun, 15 Jan 2012 00:06:14 GMT
Yes, Antony Worrall Thompson was wrong, but why not employ more people to serve him?
Poor Tesco. Profits down 16%; £5bn wiped off the value of the company. A packet of cheese and some onions gone mysteriously AWOL from its Henley branch. Oh, how the heart bleeds for chief executive, Phil Clarke, who, after a shareholder rebellion in June last year, was forced to limit his pay packet to a maximum of just £6.9m this year.
For who can't feel a twinge of sympathy in their hearts for the lovable corporate behemoth? Apart from the nation's pig farmers who protested outside Tesco's AGM last year that the supermarket had squeezed them so much, they were now subsidising them to the tune of £10 a pig, perhaps? Or the whales and dolphins that Tesco's subsidiary company in Japan sells as a tasty snack? Or the nation's wind-blasted high streets empty bar the occasional piece of tumbleweed?
In fairness, Tesco is simply applying the logic of early 21st-century capitalism. This, as eagle-eyed viewers of The Apprentice know, works roughly like this: take any old crap and then charge as much as you can possibly get away with for it. Or ideally more. In this, the episode in which one of the teams was charged with making sandwiches and used tuna so cheap that it had the texture and appearance of cat food, causing unsuspecting diners across the City of London to gag and make vomiting noises, is quite instructive. They won. Alan Sugar congratulated them for their initiative and enterprise.
That's capitalism. Just as cutting open women and inserting exploding bags of industrial-grade silicone into their breasts, and charging them handsome sums of money for it, is too. As is sacking all your check-out staff and outsourcing the labour to your customers. Industrial-grade silicone is cheaper than medical grade, after all. And may not cause cancer. And having no staff at all and letting your customers flail helplessly with unauthorised items in the bagging area is significantly cheaper than having lots. So what if breasts explode and shoppers despair? It's simply called increasing your margins.
So who can blame Antony Worrall Thompson who was caught after self-scanning? That was all he was trying to do. The small technicality of the law aside, is there really so much difference? On one occasion, he said last week, he paid Tesco £180 for three cases of champagne and then stole £4 worth of goods. His margin, admittedly, was pathetic. It's the kind of derisory profit line that would make shareholders laugh and point. But it was just a margin, not the Great Train Robbery. Or the Royal Bank of Scotland's balance sheet.
Worrall Thompson broke the law. But in other circumstances, if he was, say, a limited company and Tesco was, for example, a single mother, from whom he'd successfully managed to make an extra 31p profit, then there'd be no case to answer. Making money out of poor people is what we call "business".
Besides, we expect companies and corporations to rip us off. To overcharge us. To pass off substandard goods if they can get away with it. To pay their chief executives more money than existed in all of ancient Rome and have BBC programmes endorsing the sale of cat food sandwiches as simply sound commercial sense.
We've all experienced that startled moment of horror when we've done something rash, such as catching a train at rush hour. Or using our phones abroad. Or buying a cup of tea at a motorway service station. (Unit price, what? Maybe 2p? Sale price? £2.75. I'm a rubbish capitalist and can't do the sums but isn't that something like about 20,000% profit?)
Morality is a tricky business in the marketplace, especially now. When companies can't pay their debts, they go bankrupt. Or ask the government for a bailout. American financial writer James Surowiecki points out that American Airlines went into administration not because it couldn't afford to pay its debts but that it'd be "foolish" of it to waste more money doing so. By........
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GUARDIAN Fri, 13 Jan 2012 20:56:28 GMT
The concerted attempts by the French establishment to persuade S&P, Moody's and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears
It had all been going so well for the euro before the curse of Friday the 13th struck. Spain and Italy had held successful bond auctions, the Greeks were holding fruitful talks with their creditors, the pressure from the financial markets was abating. There were the first whispers, with fingers firmly crossed, that a turning point had been reached in the crisis that has blighted the single currency for the last two years.
But around lunchtime rumours surfaced that the ratings agency S&P had chosen this singularly inappropriate moment to detonate the bomb that has been waiting to go off for the past five weeks – a debt downgrade of eurozone countries. The fact that the story was datelined Berlin was significant: this was a German source leaking the fact that Europe's most powerful economy was not on the list of shame.
France, though, has lost its coveted AAA status, leaving the state of play in the Anglo-French war of the rating agencies as David Cameron 1 Nicolas Sarkozy 0. The concerted attempts by the French establishment to persuade S&P, Moody's and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears. France will be inconvenienced by having its debt status reduced by one notch but the real effects will be psychological and political.
For Sarkozy, months away from a presidential election, the news that France is being downgraded but Germany and the UK will remain AAA is nothing short of disastrous. Cameron should not be too smug, though. If, as looks entirely plausible, the UK economy is going backwards it will only be a matter of time before the rating agencies contemplate a downgrade on this side of the Channel.
There will, of course, be economic consequences of the S&P decision – most, if not all, of them deleterious. Europe's bailout fund for troubled single currency countries, the European Financial Stability Facility, relied on the AAA status of France for its own top-notch rating. The French downgrade means an EFSF downgrade, which will make it more difficult and more expensive to raise funds from financial markets and sovereign wealth funds.
Unsurprisingly, the European Central Bank was active in the bond markets on Friday afternoon buying Italian debt. One consequence of the downgrade rumour was that Italian bond yields – the interest rate Rome has to pay on the money it borrows – started to climb back towards 7%, but the ECB's intervention capped the rise. Further upward pressure can be expected next week.
Business and consumer confidence, already at a low ebb, will take another hit. The eurozone is already on course for a nasty double-dip recession this year: that downturn is now likely to be that bit deeper and longer.
On the foreign exchanges, the euro fell sharply against the dollar to a 16-month low, providing the one silver lining because a cheaper currency will be a boost for Europe's exporters.
With the global economy slowing, that will not be enough in itself to generate the growth necessary to reduce budget deficits and thus satisfy S&P and the others that eurozone nations are licking their public finances back into shape. An unsustainable mix of austerity, slow growth and rising debt means that this will not be the last downgrade seen in 2012, and although Germany emerged unscathed this time it too will come under scrutiny.
Why? Because Germany's export-led growth is vulnerable to a slowdown in the rest of the eurozone, and Berlin will now come under even more pressure to sign the cheques needed to keep monetary union in one piece. The knowledge of what has happened to Sarkozy will make Angela Merkel even more wary about doing anything that could trigger a German downgrade, and she will take an even more uncompromising approach in negotiations with countries seeking bail-out funds.
There could be some fun.....
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GUARDIAN Fri, 13 Jan 2012 16:41:33 GMT
Noel 'Bob' Robbins, Tesco chief operating officer sold 50,000 shares before the stock slumped on weak Christmas trading
Modern retailers receive detailed sales data at the end of every day so Noel "Bob" Robbins, UK chief operating officer at Tesco, surely knew on 4 January that the chain had had a lousy Christmas. That was the day he sold 50,000 shares in his employer at 404.5p apiece. One profits warning later, Tesco's share price is 316p, so Robbins is about £44,000 better off by selling eight days ago rather than on Friday.
Tesco says Robbins has done nothing wrong. And, by the letter of the book, he hasn't. On 4 January there were no restrictions on share sales by senior Tesco employees – or persons discharging managerial responsibilities (PDMR), as the regulatory handbook has it. The so-called "close" period for share trades by PDMRs started three days later. But common sense says that Robbins should have found another way to meet his pressing need for £200,000 for "necessary family expenditure."
Tesco argues that it wasn't only weak Christmas sales that contributed to plunge in the share price on 12 January. The lowering of profits guidance for the year ahead and the rejig to investment plans (stuff apparently unknown to Robbins on 4 January) were the "primary" causes, it claims. But, come on, the share price would surely still have fallen (albeit maybe not as heavily) if Tesco had published only bald Christmas sales numbers on Thursday – the figures were worse than the market had feared.
Tesco chief executive Philip Clarke authorised Robbins' sale himself. That was an error of judgement. He should have told Robbins to get a bridging loan, advising his underling that banks are still lending £200k to executive high-flyers who can offer collateral in the form of £4m-worth of Tesco shares.
The fact that Robbins sold only 5% of his holding suggests that this wasn't an attempt to make a killing. But the timing was appalling. Shareholders should rightly be furious and will ask what on earth Clarke thought he was doing in giving approval for a share sale that would inevitably cause a stink. The rules were obeyed, but common sense left the building.
Tesco
Supermarkets
Retail industry
Corporate governance
Profit warnings
Nils Pratley
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GUARDIAN Fri, 13 Jan 2012 18:11:30 GMT
• £9 upfront fee is response to government call for transparency, says easyJet
• Increased surcharge to be displayed at first stage of booking
EasyJet has responded to government calls to make surcharges for card payments fairer for customers by restructuring – and increasing – its fees.
The airline previously charged a booking fee of £8 for anyone paying for its flights by debit card. The credit card fee was either £12.95 or 2.5% of the costs of the booking, which ever was higher.
It will instead charge an administration fee of £9 for all passenger bookings, a fee that will now be included in all advertising and displayed as part of a full and final flight price at the first stage of the booking process.
This will be applied to all bookings regardless of payment method and how many flights are made. But the airline is also continuing to charge an additional £4.95 or 2.5% for those who pay by credit card. This means that credit card payments will now incur a fee of at least £13.95.
A spokesman for the airline said the new "administration fee" was to cover costs such as those associated with its IT infrastructure and added that the changes to transparency were "exactly what consumer groups have been asking for".
In a statement the airline said: "These changes have been made in order to address the concerns raised by consumer bodies and regulators across the European Union whilst retaining a simple, transparent and consistent booking process for all passengers regardless of nationality."
In December, Treasury minister Mark Hoban announced that the government was preparing to legislate to prevent airlines and other businesses from imposing hefty charges on credit and debit card bookings that are difficult to detect.
Under the legislation, airlines, cinemas and holiday firms will be stopped from imposing millions of pounds in "hidden last-minute" charges on internet bookings. The ruling will put the UK ahead of many other EU countries, all of which would have to ban the same fees from 2014 under the Consumer Rights Directive.
Ryanair enraged consumer groups last month when it reacted to the news by claiming that it does not charge its passengers any credit or debit card fees. Instead, it calls them administration fees.
Credit card fees
Credit cards
Debit cards
Consumer affairs
Banks and building societies
Easyjet
Airline industry
Cheap flights
Lisa Bachelor
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GUARDIAN Thu, 12 Jan 2012 18:05:54 GMT
New research by Goldman Sachs identifies Turkey and Russia as among the numerous developing nations most vulnerable to the eurozone downturn
Globalisation is a fickle business. The "interconnectedness" of economies around the world became startlingly clear in the aftermath of the collapse of Lehman Brothers in 2008, as the shock was transmitted and amplified through financial markets.
New research by Goldman Sachs suggests that as the eurozone slowdown bites in the coming months, families and businesses from Istanbul to Lima will be reminded that, like it or not, we're all in this together.
Emerging economies – including the ex-communist countries in the waiting room to join the euro – were hit hard by the Great Recession in 2008-09, but many managed to recover with the help of drastic cuts in interest rates by the ECB, the Bank of England and the Fed, which sent cheap credit flowing to firms and businesses far beyond the borders of Europe or the US.
While credit flows in the world's largest economies have all but ground to a halt since the crunch, in emerging markets they're back to pre-crisis levels. According to Goldman's analysis, that could be about to come to an end.
Depressed demand for exports from eurozone customers is the most obvious channel through which the turmoil in the euro area will hit other economies.
But Goldman's analysts identify two other ways in which the crisis that has spiralled out from Greece and Portugal to plunge the German economy into the red in the final quarter of 2011 will hit scores of other countries. First, "deleveraging" – the process of struggling banks withdrawing assets to get their balance sheets back in shape – will squeeze the flow of credit and make it harder for businesses in many emerging countries to raise capital from foreign investors.
At the same time, Goldman argues that a collapse in confidence could lead to a sharp decline in bank lending even in countries that aren't heavily dependent on lending from eurozone financial institutions.
By testing how closely linked recent economic growth has been to credit expansion – and therefore how vulnerable each country is likely to be to a so-called "sudden stop" in capital flows – Goldman identifies a disturbingly long list of economies that could be in the firing line.
Turkey, Colombia, Hong Kong, Peru, Indonesia, Russia and Poland have all attracted a healthy flow of investment since 2008, as City analysts have thumbed the pages of their atlases looking for alternatives to the clapped-out economies in the developed world. But that means they may now be heavily exposed to the sharp change in mood in Brussels and beyond. As Europe's leaders gear up for yet another make-or-break summit at the end of the month, there's much more than just the future of the euro at stake.
Eurozone crisis
Globalisation
Economics
Heather Stewart
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GUARDIAN Thu, 12 Jan 2012 20:00:04 GMT
The head of one of Britain's fastest-growing businesses is joining the executive burnout trend and stepping down
It is not hard to imagine what a former Sony boss used to the trappings of a five-star corporate lifestyle would think of Solarcentury's offices.
The renewable energy company's HQ is sandwiched between a betting shop and a newsagent offering money transfers in the colourful but scruffy market that shares the road behind Waterloo station in London.
Derry Newman made that journey. The softly spoken but steely Welshman went from head of European operations at the Japanese electronic group with more than 3,500 staff to a job at Solarcentury, where he had responsibility for 65 employees. "It was a shocking change," says the chief executive who gave up half his salary and company car to join a company that he has turned into one of Britain's fastest growing businesses, with a team that has almost doubled to 120 staff in his time there.
But Newman is now about to embark on another brave leap of faith: into unemployment. The official reason the 54-year-old is quitting is that he wants to spend more time with his family.
That is often a euphemism for a boardroom bust-up but in this case reflects the fact that both he and his wife have had health problems: "There have been times when my wife has had illness and I have had to rush back from business trips abroad, and we don't want to be in that position again."
His decision to leave Solarcentury in April, announced to the staff on Thursday, is not just about taking his marital duties seriously, it is also about looking after his children, himself – and the company. "One of the first things I will do is go out and buy a dog for my son. I have committed to do that for him – but only when I had time to look after it properly. I have had 33 years at senior-level appointments when I have not been able to support the family in the way that I should or could have done. I do not want to get to the age of 60 and look back with regret."
But Newman is also influenced by the fact that Solarcentury is at a turning point. The company, which is more often associated with its founder and chairman Jeremy Leggett, will hear in the appeal court on Friday whether the government had the legal right to cut the feed-in tariff (FIT), which reimburses small renewable energy generators, in the middle of a consultation period.
Solarcentury and a group of other renewables firms won an earlier judgment against the Department of Energy and Climate Change and they expect to win again. But the reality is that any judgment over this decision will not stop the industry here being badly hit. The FIT is to be cut in half and new rules on insulation standards will rule out 90% of UK properties from receiving solar panels in future, argues Newman, who describes the move as "draconian".
Solarcentury needs to find new markets in Asia and elsewhere fast, and the current says he is not the man for that job. "I do not want to find myself in a position where I am financially secure but emotionally bankrupt and physically not able to do what is needed for the business. The demands on a chief executive these days are extreme. There is a need to give financial returns to investors, there are kneejerk reactions from governments and the need to keep the staff together. Anyone who leads a company and thinks they can take all this in their stride is fooling themselves. It inherently chips away at you and causes emotional and spiritual stress."
Newman, born in Port Talbot and educated in engineering at Southampton, questions whether António Horta-Osório, the group chief executive of Lloyds Banking Group who recently took time off work due to fatigue, was right to rush back, and Newman says he does not want to end up like Steve Jobs, the Apple boss who kept on working despite having pancreatic cancer and being already one of the richest men in the world.
There are serious challenges at Solarcentury but Newman......
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GUARDIAN Tue, 10 Jan 2012 14:22:00 GMT
Ireland's one-time richest man now almost certain to be declared insolvent under the stricter regime in the Republic, where he would be unable to trade for another 12 years
Sean Quinn, once Ireland's richest man, has denounced the bank he once borrowed billions from for taking a "sledgehammer" to his business.
The former billionaire businessman was speaking after the Irish Bank Resolution Corporation succeeded in having Quinn's bankruptcy status in Northern Ireland overturned at Belfast high court. He now faces the prospect of bankruptcy under Irish republic rules, which would ban him from returning to business for 12 years. In the UK Quinn could have been trading again within 12 months.
The former Anglo Irish Bank had argued that the core of Quinn's business interests were in the Irish Republic and not in British territory. The now state-owned bank, which lent billions to Irish property speculators during the boom, said Quinn owes it, and thus the Irish taxpayer, €2.8bn (£2.3bn).
The businessman borrowed billions from Anglo Irish to create a property portfolio that stretched from the United States to the Middle East and Ukraine. His rise and fall personified the collapse in the Celtic Tiger economy.
Quinn had initially declared himself bankrupt in a Belfast court last November because he claimed he was operating in Northern Ireland from an office in Fermanagh, where he was born.
But speaking outside the court a bitter Quinn insisted he never worked in the Irish Republic and should have been protected by UK banking laws.
"I never did a day's work from southern Ireland in my life. I never done a day's work in my home. I never had any computers. I never had any IT system. Everything was done from Derrylin. What Anglo Irish has done to the Quinn group is like somebody taking a sledgehammer to a child's toy – they've destroyed it," he said.
During its challenge, which began last month, the IBRC claimed that a European directive that applies in insolvency cases stipulates that a person's centre of main interest has to be ascertainable to third parties, such as creditors. Judgment in the case at Belfast high court was given by Mr Justice Donal Deeny.
The judge found that a lease for an office in Derrylin, Fermanagh, had been drawn up to "bolster" Quinn's claim and that his centre of interest before bankruptcy was, in fact, in the Republic of Ireland between his home in County Cavan, offices in Belturbet and advisers' offices in Dublin.
Deeny described the Derrylin lease as "a somewhat curious document".
The judge added: "I conclude, on the balance of probabilities, that this lease has been prepared at some much later date to try and bolster the case now being made."
He commented that Quinn had failed to disclose the fact that he held an Irish passport and no British passport, that he was a voter in the Republic of Ireland and that, despite being a UK taxpayer, 20% of his taxes were paid to the authorities in the Republic.
Deeny added that he did not think he could safely conclude that this was a deliberate attempt to deceive on the part of Quinn, but found that it was sufficient grounds for him to exercise his discretion to rescind the bankruptcy order had he not already decided to annul it."
The judge ordered that if Quinn filed a fresh bankruptcy petition in Northern Ireland, notice should be given to the bank's solicitor in Belfast.
Deeny said it was likely that any future bankruptcy action by Quinn would be referred to him.
The bank's counsel, Gabriel Moss QC, said Quinn was now "bound to be made bankrupt" in the Republic of Ireland.
Moss is also seeking disclosure of who was funding Quinn's legal action so that they can be pursued for costs.
Ireland bailout
Ireland
Northern Ireland
Henry McDonald
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